The yield on US Treasury bonds rose slightly, while market participants are preparing for the publication of new US data that may affect the size of the Fed's interest rate cut at the next meeting.
The yield on 5-year Treasury bonds increased by 2.1 basis points, reaching 3.685%, while the yield on 30-year bonds was 4.128% (+2.1 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, increased by 1.2 basis points to 3.946%, while the yield on 10-year bonds increased to 3.839% (+2.1 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 11 basis points.
On Friday, Fed Chairman Jerome Powell signaled an easing of monetary policy at the Central Bank's September meeting, but declined to provide precise guidance on the timing or extent of the reduction. He added that the timing and pace of rate cuts will depend on incoming data, changing prospects and the balance of risks.
Today, investors' attention will be focused on consumer sentiment data for August, especially consumers' assessment of the current inflationary situation. Economists expect the index to rise to 100.7 from 100.3 in July. Meanwhile, at the end of this week (on Friday), the Fed's preferred inflation indicators - the personal consumption expenditure price index (PCE) and the core PCE - will be presented, which may affect rate expectations. According to consensus estimates, these indicators will confirm that price pressure continued to weaken in July. If the PCE data shows a sudden resumption of price growth, markets may revise their expectations for interest rate cuts. According to the CME FedWatch Tool, markets see a 28.5% probability of a 0.5% rate cut in September (down from 29% the week before), and a 71.5% probability of a 0.25% rate cut (up from 71.0% the week before), with a 1% rate cut expected by the end of the year.