Treasury yields were little changed Tuesday morning after November consumer inflation data showed the U.S. making little progress on inflation.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
was up less than 1 basis point at 4.731% versus 4.725% on Monday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated less than 1 basis point to 4.229% from 4.238% Monday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was up less than 1 basis points at 4.338% versus 4.329% late Monday.
What’s driving markets
Data released on Tuesday showed that inflation is remaining stubbornly persistent, judging by the core measures which Federal Reserve policy makers care most about.
The cost of living rose a scant 0.1% in November because of lower energy prices, producing an annual rate of inflation that eased to 3.1% from 3.2% in the prior month. However, when stripping out food and energy, core inflation rose a sharper 0.3% last month. The annual core rate was stuck at 4%, based on November’s consumer price index report, which was in line with forecasts.
After the report, markets priced in a 50.3% probability that the Fed will deliver its first quarter-point rate cut by May, according to the CME FedWatch Tool. This would be after factoring no action on Wednesday or by January, which would leave the fed funds rate target at between 5.25%-5.5%.
Traders will be keeping an eye on Treasury’s $21 billion auction of 30-year bonds at 1 p.m. Eastern time.
On Thursday, the European Central Bank and Bank of England are expected to leave their policy rates unchanged.
See also: European Central Bank set to cut inflation forecast but hold rates steady and Traders boost bets on mid-2024 rate cut by Bank of England as U.K. jobs market cools
What strategists are saying
“The big picture is that we remain on the path to lower inflation, though this month’s report is a reminder that the disinflation process will not be a straight line down, and there will be bumps along the way,” said Sonu Varghese, global macro strategist at Carson Group in Omaha, Neb.
None of this should change what the Fed is going to do or say this week, he said, adding that policy makers are going to stand pat on rates and make absolutely no mention of rate cuts.
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