Treasury yields held steady on Tuesday morning following the release of November consumer inflation data, which indicated minimal progress on inflation in the U.S.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
saw a slight increase of less than 1 basis point, rising to 4.731% from 4.725% on Monday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated by less than 1 basis point to 4.229% from 4.238% on Monday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
also increased by less than 1 basis point, reaching 4.338% from 4.329% on Monday.
What’s driving markets
Recent data revealed that inflation is persisting, particularly in the core measures that are closely monitored by Federal Reserve policy makers.
The minimal 0.1% rise in the cost of living in November, largely due to lower energy prices, resulted in an annual inflation rate of 3.1%, slightly down from 3.2% in the previous month. However, when excluding food and energy, core inflation increased by 0.3% last month, with the annual core rate remaining at 4%, aligning with forecasts based on November’s consumer price index report.
Following the release of this data, market indicators showed a 50.3% probability of the Fed implementing its first quarter-point rate cut by May, as indicated by the CME FedWatch Tool. This is following an assumption of no action on Wednesday or by January, which would keep the fed funds rate target between 5.25%-5.5%.
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 say or do this week, he said, indicating that policy makers are likely to maintain current rates with no mention of potential rate cuts.
