The yield on US Treasury bonds rose slightly, while market participants continue to overestimate the prospects for the Fed's monetary policy against the background of recent data.
The yield on 5-year Treasury bonds increased by 0.6 basis points, reaching 3.897%, while the yield on 30-year bonds was 4.184% (+0.4 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, rose by 0.2 basis points to 4.262%, while the yield on 10-year bonds increased to 3.979% (+0.4 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 28 basis points.
Yesterday, the Ministry of Labor announced that CPI growth accelerated in December to 3.4% per annum from 3.1% per annum in November (a 5-month low). The CPI growth exceeded economists' forecasts (+3.2%), as energy prices declined more slowly. At the same time, the annual rate of core inflation, excluding volatile items such as food and energy, decreased to 3.9% per annum from 4% per annum in November, but was higher than expected (+3.8%). Meanwhile, another report from the Labor Department showed that last week the initial jobless claims fell by 1,000 to 202,000, which was significantly lower than market expectations (210,000). The data coincided with other recently released employment figures, highlighting historical tensions in the U.S. labor market, which gives the Fed the opportunity to extend its hawkish stance, if necessary, to reduce inflation. Overall, yesterday's data helped strengthen the view that markets are too optimistic about the timing of the start of the cycle of interest rate cuts in the United States. However, traders are pricing in a 70% chance of a 0.25% Fed rate cut in March and a 97.8% probability of a rate cut in May 2024, according to the CME Group's FedWatch Tool.
Today, investors will focus on producer price data for December. Economists expect that the growth of the headline producer price index accelerated to 1.3% per annum from 0.9% per annum in November, while the core producer price index increased by 1.9% per annum after rising 2% per annum in November.