Bond yields fell after soft inflation data from China and as traders awaited the U.S. CPI report the next day.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
3.991%
fell 3.3 basis points to 3.983%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.399%
retreated 2.1 basis points to 3.395%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.609%
fell 2.2 basis points to 3.609%.
What’s driving markets
Bond yields were softer on Tuesday after data from China showed consumer and factory gate inflation falling, and as traders awaited U.S. consumer price data due the next day.
The U.S. report will color the Federal Reserve’s thinking ahead of its next monetary policy decision in just over three weeks time.
Wednesday will also see the release of the minutes of the Fed’s March rate setting meeting.
Markets are pricing in a 67.4% probability that the Fed will raise interest rates by another 25 basis points to a range of 5.0% to 5.25% after its meeting on May 3rd, according to the CME FedWatch tool.
That would be the peak for this cycle and the central bank is then expected to take its Fed funds rate target back down to to 4.5% by November, according to 30-day Fed Funds futures.
A trio of Fed officials are due to speak on Tuesday: Chicago Fed President Goolsbee at 1:30 p.m.; Philadelphia Fed President Harker at 6:30 p.m.; and Minneapolis Fed President Kashkari at 7:30 p.m. All times Eastern.
What are analysts saying
“The focus will likely remain on the Fed’s next decision, since tomorrow sees the release of the U.S. CPI report for March. The February release showed that inflation was still running reasonably fast, with core CPI at a 5-month high of +0.45%, and this time around our US economists expect core inflation to come off a bit to +0.39%, although that would still leave the year-on-year change up a tenth at +5.6%,” said Henry Allen, strategist at Deutsche Bank.
“For headline inflation, they see a lower rate of +0.24%, taking the year-on-year rate down to +5.2%. Remember this month that there’ll be unusually large base effects at play, since the March 2022 surge in energy prices after Russia’s invasion of Ukraine will be dropping out of the annual comparisons.”
“Speaking of the Fed, we should get another window into their thinking from the release of the FOMC minutes for March tomorrow. That meeting took place shortly after the market turmoil, which created some doubt as to whether they would proceed with a rate hike at all,” Allen added.
This post was originally published on Market Watch
