Treasury bond yields have declined moderately, while market participants are awaiting the release of key US data that will assess the Fed's success in curbing inflation.
The yield on 5-year Treasury bonds fell by 1.7 basis points, reaching 4.00%, while the yield on 30-year bonds was 4.358% (-2.3 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 0.4 basis points to 4.31%, while the yield on 10-year bonds fell to 4.11% (-2.2 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 20 basis points.
Bond yields continue to decline against the background of yesterday's data on US GDP for the 4th quarter, which exceeded forecasts. Meanwhile, details of the report showed that the core personal consumption expenditures price index (PCE) - which the Fed monitors for long-term inflation trends - rose by 2.7% per annum, down from 5.9% a year ago. Investors are closely watching economic data for hints on when the Central Bank may start cutting interest rates. According to the CME FedWatch Tool, markets see a 48.1% probability of a 25 basis point rate cut at the Fed meeting in March and a 89.5% probability of a rate cut in May. In 2024, futures traders now expect five rate cuts of 25 bps, although two weeks ago they expected six cuts.
Later today (at 13:30 GMT), data on personal income and consumer spending for December will be published, as well as the core PCE, the Fed's preferred inflation indicator. Both headline and core PCE deflators are expected to rise 0.2% for the month, which would be a slight acceleration from November. On an annualized basis, core PCE is projected to grow by 3% after an increase of 3.2% in November.