Treasury bond yields have declined significantly, while market participants are cautious ahead of the Fed meeting and the release of important economic data that will help clarify the current state of the US economy.
The yield on 5-year Treasury bonds fell by 11.9 basis points, reaching 4.309%, while the yield on 30-year bonds was 4.753% (-9.5 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, declined by 8.8 basis points to 4.184%, while the yield on 10-year bonds fell to 4.508% (-11.5 basis points).
The US Central Bank will announce the results of its January meeting on Wednesday at 19:00 GMT. Experts expect the Fed to leave interest rates unchanged after cutting them at each of the last three meetings. However, the Fed is facing pressure from Donald Trump, who last week advocated easing monetary policy. "I will demand an immediate reduction in interest rates. And in the same way, they should decrease around the world," Trump warned.
According to the CME FedWatch Tool, markets see a 0.5% probability of a 0.25% rate cut in January (compared to 2.1% a week ago), while the probability of an additional rate cut in March is 38.1%. At its December meeting, the Fed outlined only two interest rate cuts in 2025.
This week, investors will also focus on inflation data, namely the personal consumption expenditures price index for December. Consensus estimates suggest that the PCE price index increased by 0.3% compared to November and by 2.6% per annum. In November, the index increased by 0.1% and 2.4%, respectively. In addition to the data, investors are also anticipating results from four out of seven companies in the “Magnificent Seven," including Meta, Apple, Microsoft, and Tesla.