US Treasury yields rose moderately, while market participants continued to assess the state of the economy and prepared for the publication of the CPI report.
The yield on 5-year Treasury bonds increased by 3.1 basis points, reaching 3.987%, while the yield on 30-year bonds was 4.206% (+3.2 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, rose by 3.0 basis points to 4.375%, while the yield on 10-year bonds increased to 4.04% (+3.8 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 34 basis points.
On Thursday, market participants will receive a report on US inflation for December, which may affect expectations of the prospects for monetary easing. Experts predict that overall inflation increased by 0.2% over the month and by 3.2% year-on-year. Yesterday, the Federal Reserve Bank of New York reported that in December, consumer inflation expectations for the year ahead decreased to 3.0% from 3.4% in November. This was the lowest figure since January 2021 (3.0%). Inflation expectations for three years and five years ahead also decreased - to 2.6% and 2.5%, respectively. While the Fed is expected to cut interest rates this year, questions remain about when and how often. According to the CME FedWatch Tool, markets see a 57.3% probability of a 25 basis point rate cut at the Fed meeting in March 2024 and a 92.4% probability of a rate cut in May 2024, with almost 140 basis points of cuts priced in for this year.
Today, investors will be following the release of November's balance of trade, import and export figures. Consensus estimates suggest that the trade deficit rose to $65 billion from $64.3 billion in October.