US Treasury bond yields declined slightly, while market participants analyzed the US data and tried to assess their impact on the prospects for the Fed's monetary policy.
The yield on 5-year Treasury bonds fell by 1.8 basis points, reaching 4.399%, while the yield on 30-year bonds was 4.534% (-1.6 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 1.2 basis points to 4.806%, while the yield on 10-year bonds fell to 4.383% (-1.9 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 42 basis points.
Thus, bond yields continued yesterday's decline, caused by ISM data, which unexpectedly pointed to a contraction in activity in the manufacturing sector. On Wednesday, the ISM is scheduled to release a separate report on service sector activity. Meanwhile, today investors' attention will be drawn to the JOLTS job openings report for April. According to forecasts, the number of vacancies fell to 8.35 million in April from 8.488 million in March. Also this week, the May nonfarm payrolls report is due, providing fresh data from the labor market. These data will allow for a better assessment of the current state of the economy and provide clues about the Fed's next actions. The Fed is now in the so-called blackout period ahead of its June meeting, during which officials are limited in what they can discuss publicly. According to the CME FedWatch Tool, markets see a 16.5% probability of a 25 basis point rate cut at the Fed meeting in July, a 61.6% probability of a rate cut in September, and a 73.9% probability of monetary policy easing in November.