The bond market is experiencing a period of stability as investors await the latest data on core inflation. Yields on Treasury bonds have remained within a narrow range, with slight increases observed across various maturities.
- The 2-year Treasury yield stands at 4.81%, representing a modest increase of 0.4 basis points.
- The 10-year Treasury yield has reached 4.02%, rising by 1.2 basis points.
- Similarly, the 30-year Treasury yield has climbed to 4.18%, up by 0.9 basis points.
Although the 10-year Treasury yield witnessed a spike last week, it has since receded in three out of the last four sessions.
Focus on Consumer Price Index
The market eagerly awaits the release of the consumer price index (CPI) for July, scheduled for 8:30 a.m. Eastern. Economists surveyed by the Wall Street Journal anticipate a monthly increase of 0.2% for both the headline and core CPI.
Moreover, analysts project a decline in the year-over-year core CPI rate from 4.8% to 4.7%. Any unexpected uptick in inflation could potentially reignite concerns among Federal Reserve hawks. However, experts believe that there is currently little likelihood of another interest rate hike in September.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains, “Activity on Fed funds futures indicates a more than 85% chance of a pause in the September FOMC meeting. While an adverse inflation outcome could impact market sentiment, it is not yet reflecting expectations for an imminent rate hike.”
Warning Signals from Cleveland Fed
The Cleveland Fed’s forecasting model presents a potentially worrisome outlook. It projects a 0.4% increase for both the headline and core CPI, which deviates slightly from economist expectations.
Auction of 30-Year Notes
In addition to the data release, investors should take note of the upcoming auction of $23 billion in 30-year Treasury notes.
Market participants will be watching closely to assess the impact of the data on bond yields and to gauge the potential implications for future monetary policy decisions.