US Treasury bond yields are showing negative dynamics, while market participants are preparing for the publication of new US data that may affect the timing of the Fed's monetary policy easing.
The yield on 5-year Treasury bonds fell by 1.2 basis points, reaching 4.273%, while the yield on 30-year bonds was 4.362% (-1.8 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, fell by 0.6 basis points to 4.684%, while the yield on 10-year bonds fell to 4.244% (-1.6 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 44 basis points.
One of the key events of this week will be the publication of the core personal consumption expenditures (PCE) price index - the Fed's preferred measure of inflation. Economists expect that in January core PCE rose by 0.4% m/m and by 2.8% per annum. Together with core PCE, a report on personal income and spending will also be presented. Consensus estimates suggest that personal income increased by 0.4% after an increase of 0.3% in December, and personal spending rose by 0.2% after an increase of 0.7%. Also this week, a report on GDP for the 4th quarter will be released - according to forecasts, economic growth slowed to 3.3% QoQ from 4.9% QoQ in the 3rd quarter. Fed officials have repeatedly stated in recent weeks that economic data, especially inflation figures, will be of key importance when making decisions on monetary policy easing. According to the CME FedWatch Tool, markets see a 20.8% probability of a 25 basis point rate cut at the Fed meeting in May, and a 66.1% probability of a rate cut in June, with approximately 80 basis points of cuts priced in for this year.
Meanwhile, today the focus of investors' attention will be on new home sales data for January. Economists expect new home sales to rise to 0.68 million from 0.664 million in December. Overall, a recent upturn in home buyer sentiment and mortgage applications for purchase suggest rising optimism. Lower mortgage rates have also helped boost resales at the start of the year.