The yield on US Treasury bonds declined moderately, while market participants continue to overestimate the prospects for easing the Fed's monetary policy against the background of recent data and statements by Central Bank policymakers.
The yield on 5-year Treasury bonds fell by 3.4 basis points, reaching 3.99%, while the yield on 30-year bonds was 4.30% (-1.2 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 3.8 basis points to 4.316%, while the yield on 10-year bonds fell to 4.077% (-2.7 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 24 basis points.
Yesterday's retail sales data for December indicated strong consumer demand over the holidays, further weakening expectations of easing the Fed's monetary policy. Earlier this week, Federal Reserve Governor Christopher Waller said that while the central bank will likely cut rates this year, it may take its time to do so. According to the CME FedWatch Tool, markets see a 61.4% probability of a 25 basis point rate cut at the Fed meeting in March and a 92.3% probability of a rate cut in May, with 150 basis points of cuts priced in for this year.
Today, investors will monitor the publication of data on the housing market and labor market. Economists expect that building permits rose to 1.48 million in December from 1.467 million in October, while housing starts fell to 1.429 million from 1.56 million. As for the labor market data, consensus estimates suggest that initial jobless claims rose to 207 thousand last week from 202 thousand a week earlier.