The yield on US Treasury bonds has declined moderately, while market participants are preparing for a two-day Fed meeting and the publication of a lot of data on the US labor market.
The yield on 5-year Treasury bonds fell by 3.2 basis points, reaching 4.048%, while the yield on 30-year bonds was 4.423% (-3.4 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 1.8 basis points to 4.369%, while the yield on 10-year bonds fell to 4.166% (-3.3 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 20 basis points.
The Fed meeting will begin on Tuesday and end on Wednesday. In addition to the interest rate decision, the Fed will also present a fresh monetary policy guidance. Consensus estimates suggest that rates will be maintained at 5.5%, but investors expect the Fed to clarify the timing and pace of monetary policy easing. Fed officials have repeatedly stated in recent months that they are looking for more evidence that inflation is steadily returning to the target level (2%) before cutting rates. According to the CME FedWatch Tool, markets see a 100% probability of a rate cut in September, and a 100% probability of monetary policy easing in November.
As for the data, the JOLTs job openings report for June will be presented tomorrow, the ADP employment report for July will be released on Wednesday, and the July statistics on non-farm employment and unemployment rate will be published on Friday. Investors will look for clues about the state of the labor market in the data, as this could also inform monetary policy expectations and decision-making.