US Treasury bond yields rose slightly, while investors continued to overestimate the prospects for monetary policy easing amid recent statements by Fed policymakers.
The yield on 5-year Treasury bonds rose by 0.2 basis points, reaching 4.061%, while the yield on 30-year bonds was 4.327% (+1.8 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 0.6 basis points to 4.416%, while the yield on 10-year bonds increased to 4.108% (+1.0 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 31 basis points.
Yesterday, the president of the Federal Reserve Bank of Minneapolis Kashkari said that the stability of the economy allows Fed policymakers to spend more time evaluating incoming data before cutting rates. He also added that at the moment he considers it advisable to reduce rates 2-3 times this year, but noted that in the event of a significant slowdown in the labor market, rate cuts may occur faster. Meanwhile, the president of the Federal Reserve Bank of Boston Collins said that a rate cut could occur later this year. “If the economy meets my expectations, the central bank will probably be able to cut rates at some point later this year. However, I will need to see more evidence that inflation is falling towards the 2% target before supporting monetary policy easing,” Collins said. Meanwhile, Fed Governor Adriana Kugler reported that inflation is showing solid signs of slowing down, but she is not ready yet to start lowering interest rates. “Though inflation is easing, the job is not done yet and more data is needed to provide evidence of inflation continuing to trend lower”, she added. The next CPI report will be published next Tuesday. Economists expect price growth to accelerate to 0.3% m/m in January from 0.2% m/m in December, while core inflation rose again by 0.3% m/m.
Ahead of this data, several other Fed speakers are due to give remarks, with investors holding out hope for fresh hints about when rate cuts may begin. According to the CME FedWatch Tool, markets see a 20.5% probability of a 25 basis point rate cut at the Fed meeting in March and a 65.7% probability of a rate cut in May.