The yield on US Treasury bonds has declined moderately, while market participants expect the publication of a new batch of US statistical data that will help clarify the prospects for the economy.
The yield on 5-year Treasury bonds fell by 1.7 basis points, reaching 4.161%, while the yield on 30-year bonds was 4.462% (-1.5 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 1.1 basis points to 4.51%, while the yield on 10-year bonds fell to 4.242% (-1.7 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 27 basis points.
Investors awaited the latest economic data as they assessed the state of the U.S. economy and what this could mean for monetary policy decisions by the Fed. The existing home sales report for June and the Richmond Fed manufacturing index for July will be published today at 14:00 GMT. Later this week, the GDP report for the 2nd quarter and June's personal consumption expenditures price index (the Fed's preferred inflation indicator) will be released. Economists forecast that the core PCE price index rose 0.1% m/m after a similar increase in May. While Fed policymakers have indicated that they are not ready to cut rates yet and expect more economic data reflecting lower inflation, Fed Chairman Powell suggested earlier this month that the central bank would not wait for inflation to reach 2% before cutting rates. According to the CME FedWatch Tool, markets see a 94.2% probability of a rate cut in September, and a 97.3% probability of monetary policy easing in November. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.