US Treasury bond yields rose moderately, while market participants are preparing for the publication of US inflation data, which will provide new clues about the trajectory of the Fed's monetary policy.
The yield on 5-year Treasury bonds rose by 4.3 basis points, reaching 4.26%, while the yield on 30-year bonds was 4.505% (+3.7 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, increased by 3.8 basis points to 4.635%, while the yield on 10-year bonds increased to 4.311% (+3.9 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 32 basis points.
Data released on Friday showed that employment growth in the US slowed slightly in June, and the unemployment rate rose, which confirms the view that the Fed may start cutting interest rates in September. Later this week, the June CPI report will be released, as well as producer price data for June. Investors will also focus on Chair Jerome Powell's semi-annual Congressional testimony and comments from a series of Fed officials. All of these events could provide clues about when the first rate cut could come. According to the CME FedWatch Tool, markets see a 6.7% probability of a 25 basis point rate cut at the Fed meeting in July, a 72.9% probability of a rate cut in September, and a 83.9% probability of monetary policy easing in November.