U.S. Treasury yields declined moderately, while market participants are preparing for the publication of important economic data that will help clarify the prospects for the Fed's monetary policy.
The yield on 5-year Treasury bonds fell by 2.2 basis points, reaching 4.595%, while the yield on 30-year bonds was 4.97% (-1.7 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, declined by 1.2 basis points to 4.39%, while the yield on 10-year bonds fell to 4.782% (-2.3 basis points) after reaching a new 14-month high yesterday.
As for the data, the producer price index for December will be released later today, and the consumer price index for December will be presented tomorrow. Consensus estimates suggest that producer price growth slowed to 0.3% m/m from 0.4% m/m in November, while core PPI growth accelerated to 0.3% from 0.2%. If inflation data exceeds forecasts, this could weaken the prospects for further Fed rate cuts this year. Bank of America economists are already predicting no Fed rate cuts this year and are even warning about the risks of tightening monetary policy. Traders are pricing in 29 basis points of easing this year, less than the 50 basis points the Fed projected in December. According to the CME FedWatch Tool, markets see a 2.7% probability of a 0.25% rate cut in January (compared to 6.4% a week ago), while the probability of an additional rate cut in March is 21.6%.