Treasury yields were little changed Tuesday morning as traders awaited the U.S. consumer-price index report on Wednesday.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.007%
was 4.012%, up slightly from 4.004% on Monday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.424%
advanced slightly to 3.424% from 3.414% Monday afternoon. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.630%
was 3.634%, up slightly from 3.626% on Monday.
What’s driving markets
U.S. bond yields were initially softer on Tuesday after data from China showed consumer inflation falling.
Yields then turned steady to slightly higher as the morning wore on, with traders awaiting the March U.S. consumer price data due on Wednesday. The report is likely to affect the Federal Reserve’s thinking ahead of its next monetary policy decision in just three weeks. Wednesday also brings the release of the minutes of the Fed’s March rate setting meeting.
Markets are pricing in a 69.5% probability that the Fed will raise interest rates by another 25 basis points to between 5% and 5.25% on May 3, according to the CME FedWatch tool. The central bank is then expected to take its fed-funds rate target back down to between 4.5% and 4.75% by November.
A trio of Fed officials are due to speak on Tuesday: Chicago Fed President Austan Goolsbee at 1:30 p.m.; Philadelphia Fed President Patrick Harker at 6:30 p.m.; and Minneapolis Fed President Neel Kashkari at 7:30 p.m. All times are in the Eastern time zone.
What analysts are saying
“The focus will likely remain on the Fed’s next decision, since tomorrow sees the release of the U.S. CPI report for March. The February release showed that inflation was still running reasonably fast, with core CPI at a 5-month high of +0.45%, and this time around our U.S. economists expect core inflation to come off a bit to +0.39%, although that would still leave the year-on-year change up a tenth at +5.6%,” said strategist Henry Allen and others at Deutsche Bank.
“For headline inflation, they see a lower rate of +0.24%, taking the year-on-year rate down to +5.2%. Remember this month that there’ll be unusually large base effects at play, since the March 2022 surge in energy prices after Russia’s invasion of Ukraine will be dropping out of the annual comparisons.”
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