US Treasury bond yields have risen markedly, while market participants await a speech from Federal Reserve Governor Christopher Waller and prepare for the release of economic data that will help clarify the outlook for Fed's monetary policy.
The yield on 5-year Treasury bonds increased by 7.2 basis points, reaching 3.904%, while the yield on 30-year bonds was 4.245% (+4.7 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, rose by 7.7 basis points to 4.215%, while the yield on 10-year bonds increased to 4.011% (+6.1 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 20 basis points.
Investors awaited comments later on Tuesday from the Fed's Christopher Waller, whose dovish turn in late November helped to trigger a blistering year-end market rally. Meanwhile, retail sales data for December will be released tomorrow, which may increase fears about the recession and the economic outlook if consumer spending declines. Economists expect retail sales growth to accelerate to 0.4% from 0.3% in November, while core retail sales increased by 0.2%, as in November. Many investors were hoping the Fed would cut rates more than expected this year, although new figures have called this into question. According to the CME FedWatch Tool, markets see a 69.0% probability of a 25 basis point rate cut at the Fed meeting in March and a 100% probability of a rate cut in May.