US Treasury yields rose slightly, while market participants are preparing for the publication of new data that will help clarify the state of the economy and the prospects for the Fed's monetary policy.
The yield on 5-year Treasury bonds increased by 1.6 basis points, reaching 4.216%, while the yield on 30-year bonds was 4.399% (+0.7 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, increased by 1.7 basis points to 4.617%, while the yield on 10-year bonds increased to 4.228% (+1.0 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 39 basis points.
Last week, the US Central Bank said it still expects three rate cuts by the end of the year. But the Fed also warned that it would not act until it was more confident that inflation was steadily declining towards the 2% target. According to the CME FedWatch Tool, markets see an 10.8% probability of a 25 basis point rate cut at the Fed meeting in May, and a 75.1% probability of a rate cut in June (compared to 54.7% a week earlier), with about 80 basis points of cuts priced in for this year - much lower than the 160 or so that had been priced in at the start of the year.
This week, investors' main attention will be focused on the Friday publication of the personal consumption expenditures price index, which is the Fed's preferred inflation indicator. How markets react to the data will not, however, be clear until the following week, as bond markets will remain closed for Good Friday this week.
Investors will also pay attention to the data on the consumer confidence index for March (on Tuesday), the report on durable goods orders for February (on Tuesday), statistics for initial jobless claims for last week (on Thursday) and the GDP report for the 4th quarter (on Thursday). Meanwhile, today will be presented a report on new home sales for February, and economists predict that sales rose to 0.68 million from 0.661 million in January.