The yield on US Treasury bonds rose moderately, while market participants are preparing for the release of key US labor market data that could influence the timing of the Fed's interest rate cut.
The yield on 5-year Treasury bonds increased by 2.8 basis points, reaching 4.318%, while the yield on 30-year bonds was 4.493% (+2.2 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, increased by 2.1 basis points to 4.662%, while the yield on 10-year bonds rose to 4.333% (+2.4 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 33 basis points.
As for the data, the nonfarm payrolls report will be published at 12:30 GMT. Economists expect employment to continue to grow in March, albeit at a slower pace than in the previous month - by 200,000 versus 275,000 in February, while wage growth slowed to 4.1% year-on-year from 4.3% in February.
If the data exceeds forecasts, it will strengthen the Fed's arguments in favor of delaying interest rate cuts until at least the third quarter. According to the CME FedWatch Tool, markets see a 12.0% probability of a 25 basis point rate cut at the Fed meeting in May, and a 61.3% probability of a rate cut in June (compared to 65.8% yesterday).
At its last meeting, the Fed indicated that it still expects three interest rate cuts by the end of this year. However, yesterday, Minneapolis Fed President Neil Kashkari said that If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all. According to official data, the U.S. consumer price index (CPI) jumped 0.4% m-o-m in February, following an unrevised 0.3% m-o-m increase in the previous month. This marked the strongest monthly advance in headline CPI since September 2023 (+0.4% m-o-m). Over the last 12 months, the CPI climbed by 3.2% y-o-y, accelerating from an unrevised gain of 3.1% y-o-y in January. Economists had predicted the U.S. CPI to increase by 0.4% m-o-m and 3.1% y-o-y. The core CPI, excluding volatile food and fuel costs, went up by 0.4% m-o-m in February, the same pace as in the previous month.