Treasury yields were little changed Wednesday morning as investors assessed signs of deflation in China and its impact on the U.S. economy.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
advanced less than 1 basis point to 4.762% from 4.756% on Tuesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
was little changed at 4.023% versus 4.024% Tuesday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
slipped 1.2 basis points to 4.192% from 4.204% late Tuesday.
What’s driving markets
Treasury yields held steady as traders awaited the July consumer price index data, due on Thursday. Economists polled by The Wall Street Journal expect the data to produce a 3.3% annual headline CPI rate for last month, versus 3% in June, and a core rate over the past 12 months of 4.7% versus 4.8% previously.
Helping to keep yields in check on Wednesday was data from China, where consumer prices fell for the first time in more than two years, or by 0.3% from a year earlier in July, while factory gate prices fell 4.4%.
Markets are pricing in an 86.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chances of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is priced at 26.3%.
The central bank is mostly expected to take its fed funds rate target back down to around 5% or lower next May.
There are no U.S. major economic updates on Wednesday. The Treasury will auction $38 billion of 10-year notes at 1 p.m. Eastern.
What analysts are saying
“The 10-year auction today will provide another pre-CPI litmus test for the market’s appetite to buy the increased issuance,” said Will Compernolle, macro strategist at FHN Financial in New York.
“UST yields are steady so far this morning, only modestly reacting to inflation (correction: deflation) data out of China that suggests lower costs for U.S. imported goods prices (PPI fell 4.4% year-on-year) and cooler global demand (CPI fell 0.3% year-on-year),” he wrote in a note.
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