Treasury yields hold firm in thin holiday trade, CPI awaited
2024.08.12 10:00
NEW YORK (Reuters) – U.S. Treasury yields traded sideways early on Monday as the market awaited inflation data later in the week that should be pivotal for Federal Reserve policymakers to judge whether an easing at their September meeting is warranted.
With Japanese markets closed on Monday, overnight interest in Treasuries was minimal. With many U.S. participants taking August vacations and after the gyrations of a week ago, there was no incentive to trade ahead of July producer price data on Tuesday and, especially, the release of the Consumer Price Index on Wednesday.
With inflation trending toward the Fed’s 2% target and recent payrolls and unemployment claims data pointing to reduced labor market tightness, the futures market is pricing in at least a 25 basis point cut at the next FOMC meeting in September and as many as three by the end of 2024.
“The major catalyst this week is CPI on Wed. I would describe it as checking the box ahead of a probable September rate cut,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
“As long as the CPI report isn’t tragic, I don’t think there is a lot of ultimate market import in it.”
added that a few corporate bond deals were keeping light pressure on interest rates.
Benchmark 10-year note yields were up 1.1 basis points to 3.953% after last week’s 15-basis point rise, which was the largest one-week increase since April, after recovering from last Monday’s sharp sell-off to the lowest in more than a year.
Yields on interest rate-sensitive two-year notes rose 1 basis point to 4.063% and also recovered to post the biggest one-week increase since March last week.
The yield curve between two- and steepened 1.1 basis points to minus 11.2 basis points. It reached 1.50 basis points a week ago, turning positive for the first time since July 2022.
The breakeven inflation rate on five-year TIPs was 1.98% early Monday, having recently fallen below 2% for the first time since early 2021.
