Yields on U.S. Treasury notes were inching higher on Monday, with investors facing a major week of economic events, as well as two auctions of government paper.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 1 basis point to 4.74% after soaring 14.7 basis points on Friday to 4.725%, the largest one-day increase since June. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
advanced 2 basis points to 4.25% after climbing 11.5 basis points on Friday to 4.244%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
rose 2 basis points to 4.33%, after rising 8.1 basis points on Friday to 4.325%.
What’s driving markets
Bonds sold off on Friday after strong jobs data pushed back on expectations for a Federal Reserve interest rate cut next year. Fed-funds futures traders now see a 42% chance of at least a 25-basis-point cut by March, down from 64.5% on Thursday, according to the CME FedWatch tool.
The Fed is expected to hold interest rates steady when it announces a policy decision on Wednesday, though investors will carefully monitor comments from Chair Jerome Powell. And one last round of consumer price data is coming ahead of that meeting on Tuesday.
The October CPI report is credited as giving a leg up to last month’s stock and bond rally, noted Stephen Innes, managing partner at SPI Asset Management.
“While any disappointment (meaning a hotter-than-expected reading) in the November CPI report has the potential to reverse some of the market euphoria, particularly in the context of robust November nonfarm payroll figures and an overshoot in average hourly earnings, a significant upside surprise would be needed to alter the prevailing dovish narrative substantially,” Innes told clients.
November CPI is expected by economists to show softer headline prices, but a firmer core reading that strips out food and energy prices. Other data this week include producer prices on Wednesday and retail sales on Thursday.
The Treasury market is also facing two auctions this week, starting Monday with a $37 billion sale of 10-year debt and a $21 billion sale of 30-year securities expected for Tuesday.