Bond yields were little changed early Thursday as traders kept their powder dry ahead of important inflation data.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slipped by 1 basis point to 4.867%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated less than 1 basis point to 4.104%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell less than 1 basis point to 4.220%.
What’s driving markets
The personal consumption expenditure price index for July will be published at 8:30 a.m. Eastern.
Analysts forecast the core PCE price index, one of the Federal Reserve’s most favored inflation gauges, to have risen 0.2% month-on-month, the same as in June, and for the annual rate to be 4.2%, against June’s 4.1%.
Ten-year Treasury yields have fallen from a 16-year peak around 4.36% hit last week to 4.10% after a batch of economic data signaled a slowing U.S. economy that may help the Fed in its determination to suppress inflation.
Markets are pricing in an 89% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20, according to the CME FedWatch tool.
The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in November is priced at 40%, down from 46% before the softer-than-expected ADP private sector jobs report was released on Wednesday.
The central bank is not expected to take its Fed funds rate target back down to around 5% until June 2024, according to 30-day Fed Funds futures.
Other U.S. economic updates set for release on Thursday include the weekly initial jobless claims at 8:30 a.m., and the Chicago Business Barometer for August, released at 9:45 a.m.
In Europe, the 10-year German bund yield
BX:TMBMKDE-10Y
is down 4.4 basis points to 2.504% after data showed the eurozone’s core consumer prices index rose 0.3% in the month to August, in line with forecasts.
What are analysts saying
Bill Adams, chief economist for Comerica Bank, noted that Wednesday’s softer U.S. jobs and GDP data may help the Fed be less hawkish in coming months.
“The economy is slowing to a pace that will help bring demand in line with the U.S.’s productive capacity and tame inflation. Job growth is slowing to around the pace necessary to keep up with the growth of the working-age population,” Adams said.
“The GDP revisions are good news on two levels: Growth still looks good, and the downward revisions reduce the risk of the economy running too hot and exacerbating inflation. At the margin, the ADP release and GDP revisions widen the path for the Fed to pivot to rate cuts in the first half of 2024,” he added.
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