The yield on US Treasury bonds rose moderately, while market participants are preparing for the publication of US inflation data and the Fed meeting.
The yield on 5-year Treasury bonds increased by 1.6 basis points, reaching 4.468%, while the yield on 30-year bonds was 4.577% (+2.9 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, increased by 0.8 basis points to 4.878%, while the yield on 10-year bonds increased to 4.451% (+2.3 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 43 basis points.
Economists expect the Fed to maintain the status quo at this week's meeting, with investors now predicting only one 25 basis point rate cut this year. According to the CME FedWatch Tool, markets see a 8.9% probability of a 25 basis point rate cut at the Fed meeting in July, a 47.1% probability of a rate cut in September, and a 62.0% probability of monetary policy easing in November. Now the markets are waiting for the publication of CPI data for May, which will take place just a few hours before the announcement of the Fed's rate decision on Wednesday. Investors will closely monitor the central bank's statements, as well as the press conference after the meeting, scanning them for hints on the prospects for rates and the economy. Policymakers have repeatedly stated that they need additional data to be sure that inflation is steadily falling to the 2% target before cutting interest rates.