U.S. Treasury bond yields mostly declined, while market participants continued to assess the impact of yesterday's CPI data on the Fed's policy decisions.
The yield on 5-year Treasury bonds fell by 0.6 basis points, reaching 4.35%, while the yield on 30-year bonds was 4.492% (-2.4 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, rose by 0.5 basis points to 4.741%, while the yield on 10-year bonds fell to 4.338% (-1.8 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 40 basis points.
Yesterday, the Bureau of Labor Statistics said that the consumer price index rose by 0.3% in April after increasing by 0.4% in March and February. In annual terms, CPI growth slowed to 3.4% from 3.5% in March. Economists had predicted that the index would grow by 0.4% over the month and by 3.4% year-on-year. Optimism that the Fed is close to cutting rates was also boosted by U.S. retail sales data. Fed policymakers have repeatedly stated that interest rates will be lowered only after data shows that inflationary pressures are steadily decreasing. Fed Chairman Powell said earlier this week that the central bank will have to be patient as inflation remains higher than expected. According to the CME FedWatch Tool, markets see a 8.4% probability of a 25 basis point rate cut at the Fed meeting in June, a 34.9% probability of a rate cut in July, and a 72.6% probability of monetary policy easing in September.
Today, investors will analyze US data on the housing market and the labor market, which will help clarify the current state of the economy. More Fed officials are also expected to give remarks in the last days of the week.