US bond yields have mostly declined, but only slightly, as market participants are cautious ahead of the publication of US inflation data that will help clarify the Fed's further actions.
The yield on 5-year Treasury bonds fell by 0.4 basis points, reaching 4.267%, while the yield on 30-year bonds was 4.393% (-0.4 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, rose by 0.4 basis points to 4.734%, while the yield on 10-year bonds fell to 4.252% (-0.5 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 48 basis points.
The stronger-than-expected PMI data from S&P Global released on Friday reduced the likelihood of the Fed easing monetary policy this year. Overall, the S&P Global data contrasted with recent indicators that indicated that economic activity in the United States is slowing, which gives the Fed the opportunity to keep rates at the current restrictive level if inflation does not slow down. The U.S. personal consumption expenditures (PCE) price index, which will be published on Friday, will help assess progress in reducing inflation. Economists predict that the PCE remained unchanged in May compared to April, while core PCE growth slowed to 0.1% from 0.2%. A soft reading is likely to bolster bets on a rate cut as early as September. According to the CME FedWatch Tool, markets see a 10.3% probability of a 25 basis point rate cut at the Fed meeting in July, a 65.9% probability of a rate cut in September, and a 78.2% probability of monetary policy easing in November.