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Bond yields fell early Wednesday as traders jostled for position ahead of crucial inflation data.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.864%
slipped by 1.3 basis points to 4.864%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.962%
retreated 3.1 basis points to 3.943%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
4.015%
fell 2.4 basis points to 3.988%.
What’s driving markets
All focus is on the consumer price index report for June, due to be published at 8:30 a.m. Eastern.
Annual headline CPI inflation is expected by economists to have fallen from 4% in May to 3.1%, the slowest pace in more than two years. The month-on-month headline rate is forecast to have accelerated from 0.1% to 0.3%.
Annual core CPI, which strips out volatile prices such as those of food and energy, is expected to slow from 5.3% to 5%, while the month-on-month reading eases from 0.4% to 0.3%.
Bond investors will hope that such an outcome will allow the Federal Reserve to soon stop its campaign of interest rate rises.
Markets are pricing in a 92% probability that the Fed will raise interest rates by 25 basis points to a range of 5.25% to 5.50% after its meeting on July 26, according to the CME FedWatch tool.
The central bank is not expected to take its Fed funds rate target back down to around 5% until May 2024, according to 30-day Fed Funds futures.
Fed officials making comments on Wednesday, include: Richmond Fed President Barkin speaking at 8:30 a.m.; Minneapolis Fed President Kashkari at 9:45 a.m.; and Atlanta Fed President Bostic at 1 p.m.. Also, the Fed Beige Book will be released at 2 p.m.. All times Eastern.
What are analysts saying
“While the Fed opted for a temporary pause in June, Fed officials have been quite vocal in their intentions to reengage later this month and potentially again before the end of the year. With inflation still elevated, despite concerns of a recession or fragility in the banking sector, reinstating stable price pressures remains the committee’s number one goal,” Lindsey Piegza, chief economist at Stifel.
“Speaking of the July FOMC meeting, with the clock ticking down, this week’s CPI and PPI reports will act as the last key data points before this month’s policy announcement. As the June minutes showed, Fed officials are increasingly concerned regarding the sluggish pace of improvement in inflation. Down from peak levels, inflation remains more than double the Fed’s intended target. While one month may not be enough to move the needle in either direction, an upside surprise will more than solidify a hike in July and potentially a second-round post-pause hike come September,” Piegza added.
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