US Treasury yields fell moderately, while market participants are cautious ahead of the publication of US inflation data, which may affect the Fed's interest rate decision.
The yield on 5-year Treasury bonds fell by 3.9 basis points, reaching 4.395%, while the yield on 30-year bonds was 4.522% (-3.1 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 2.1 basis points to 4.768%, while the yield on 10-year bonds fell to 4.386% (-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 38 basis points.
Investors are awaiting the release of US CPI data, which will provide new clues about the state of the economy and the prospects for interest rates after recent reports and comments from Fed officials questioned when and how often rates will be cut this year. Economists expect core CPI to rise by 3.7% per year after an increase of 3.8% per year in February. If the forecast is confirmed, it will be the weakest annual increase since April 2021. The overall CPI is expected to have increased by 0.3% over the month and by 3.4% per annum. A higher-than-expected reading may increase concerns that rates will remain elevated for a long time. According to the CME FedWatch Tool, markets see a 0% probability of a 25 basis point rate cut at the Fed meeting in May, and a 51.3% probability of a rate cut in June (compared to 63.7% a week earlier).
Also tomorrow, the minutes of the March Fed meeting will be published, following which representatives of the central bank said that they expect three rate cuts this year.