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U.S. bond yields moved lower on Monday, with the policy-sensitive two-year rate down from an almost 15-year high reached on Friday, ahead of the next major U.S. inflation data.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
3.548%
slipped to 3.528% from 3.569% on Friday. Friday’s level was the highest since Nov. 7, 2007. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.297%
retreated to 3.283% from 3.321% late Friday. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.459%
was 3.439% versus 3.456% on Friday afternoon. - The 10-year to 2-year spread of minus 23 basis points means the yield remains inverted, signaling a looming economic downturn.
What’s driving markets
Yields on U.S. government bonds were lower ahead of crucial consumer price data on Tuesday that’s seen as likely to confirm another aggressive rate hike by the Federal Reserve is likely when policy makers meet next week.
The annual headline rate of the consumer-price index is off its peak, but the July reading of 8.5% year-over-year was still near a 41-year high. Meanwhile, central bank policy makers have been vocal of late in stressing the need to be aggressive in damping price pressures.
Analysts reckon that sharp pullbacks in U.S. gasoline prices may help the headline CPI number show a small month-on-month decline for August. Economists expect the year-over-year rate to fall to 8%.
Markets are pricing in an 88% likelihood that the Fed will raise interest rates by another 75 basis points to a range of 3% to 3.25% at its Sept. 20-21 meeting. The central bank is expected to take its fed funds rate target to at least 3.75%-4% by December, according to the CME FedWatch tool.
On Monday, the Treasury will auction $41 billion of 3-year notes and $32 billion of 10-year notes.
What strategists are saying
“It’s the beginning of a week that we expect will provide confirmation of what investors anticipate will be another 75 bp hike when the Committee meets on September 21. August’s CPI data will be the departure point for fully pricing in a three-quarter point tightening, leaving the market to ponder how much of a downside surprise policy makers can ignore in the ‘totality’ framework,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.
