Bond yields rose on Monday as a broadly positive tone across markets reduced demand for government paper, and investors eyed inflation data and a Fed decision in coming days.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.606%
added 1.3 basis points to 4.619%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.754%
rose 1.9 basis points to 3.761%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.880%
was barely changed at 3.886%.
What’s driving markets
All attention is turned to a week full of potential monetary-policy catalysts.
First up on Tuesday is the U.S. consumer price index for May. Economists expect CPI inflation to have dropped from 4.9% in April to 4%, a decline that should convince the Federal Reserve on Wednesday to leave interest rates unchanged this month.
Indeed, markets are pricing in an 81% probability that the Fed will stand pat at a range of 5.0% to 5.25% after its meeting on June 14, according to the CME FedWatch tool.
The chances of the central bank hiking by 25 basis points in July are currently 54%.
The yield on 10-year German bunds
TMBMKDE-10Y,
were barely changed at 2.378% ahead of the European Central Bank’s expected 25 basis point hike on Thursday.
The Bank of Japan is forecast to leave rates unchanged on Friday, and 10-year JGB yields
TMBMKJP-10Y,
— which the central bank continues to suppress by intervention — are little changed at 0.429%.
What are analysts saying
Not all analysts agree that the Fed will leave rates unchanged this month.
“We are maintaining our out-of-consensus call for the Fed to hike rates 25bp [basis points] on Wednesday at 2pm. Fed officials pledged to make data-dependent decisions on a meeting-by-meeting basis. 0.4%MoM April core PCE inflation, 339k new jobs in May and a projected 0.37%MoM May core CPI reading Tuesday point toward further hikes,” Citi economist Andrew Hollenhorst wrote in a note published Monday.
“The extent to which data have surprised will be evident in upward revisions to projections for core PCE inflation and GDP growth and a downward revision to the unemployment rate. Whether the Fed hikes or ‘skips’ at this week’s meeting, the 2023 and 2024 median ‘dots’ are likely revised up 25bp. Risks at the meeting skew hawkish relative to markets increasingly anticipating the end of hikes,” he added.
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