The yield on US Treasury bonds rose moderately, while market participants are preparing for the publication of data that will help assess the current state of the economy and the Fed's monetary policy prospects.
The yield on 5-year Treasury bonds increased by 2.1 basis points, reaching 3.809%, while the yield on 30-year bonds was 3.971% (+2.6 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, rose by 1.6 basis points to 4.258%, while the yield on 10-year bonds increased to 3.816% (+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 44 basis points.
Recent economic data have strengthened investors' confidence that the Fed will begin easing monetary policy next year. But questions remain about when the rate cut will occur and whether it will be enough to avoid a recession in the United States, since interest rates will remain elevated even after the cut. According to the CME FedWatch Tool, markets see a 72.8% probability of a 25 basis point rate cut at the Fed meeting in March 2024 and a 99.8% probability of a rate cut in May 2024, with over 150 basis points of cuts priced in for next year.
Today, market participants will focus on data on the labor market and the housing market. According to forecasts, initial jobless claims rose by 210 thousand last week after an increase of 205 thousand a week earlier, while pending home sales increased by 0.9% in November, partially offsetting the October drop (-1.5%).