US bond yields rose early Tuesday as traders digested the latest comments from Federal Reserve officials and looked ahead to a headline inflation report later in the week.
What is happening
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The yield on the two-year Treasury note BX:TMUBMUSD02Y was only unchanged at 4.379%. Yields move in the opposite direction to prices.
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The yield on the 10-year Treasury note BX:TMUBMUSD10Y rose less than one basis point to 4.041%.
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The yield on the 30-year Treasury note BX:TMUBMUSD30Y rose 1.3 basis points to 4.207%.
What drives the markets?
Ten-year Treasury yields rose above 4% and were trading near their highest levels in a month after the market dampened expectations of a rate cut from the Federal Reserve this year following stronger-than-expected jobs data published last Friday.
Fed officials continued to hedge their expectations about the likely path of central bank policy.
“If inflation continues to decline near our 2% target over time, it will eventually become appropriate to initiate a rate cut process to prevent policy from becoming overly restrictive,” Fed Governor Michelle Bowman said late Monday.
However, Bowman also said there was a risk that the recent easing in financial conditions could lead to an acceleration in growth which could lead to an acceleration in inflation.
However, the central bank will welcome a survey released by the New York Fed on Monday, which showed that one-year household inflation expectations were at their lowest levels since January 2021.
With this in mind, traders were looking forward to the December reading on US consumer price inflation which will be published on Thursday, followed the next day by producer price data.
US economic updates scheduled for Tuesday include the November trade deficit at 8:30 a.m. ET. Fed Vice Chairman for Supervision Michael Barr will participate in the discussion at noon.
Markets expect a 95.3% chance that the Fed will leave interest rates unchanged in a range of 5.25% to 5.50% after its next meeting on January 31, according to the CME FedWatch tool.
The chances of a rate cut of at least 25 basis points at the subsequent meeting in March are 60%, down from 79% a week ago.
The Treasury Department will auction $52 billion in 3-year bonds at 1 p.m
What analysts say
“[T]Ipek Ozkardskaya, chief investment officer, said that expectations of a sufficiently weak CPI report from the United States on Thursday and the continuing decline in crude oil prices continue to calm investors' nerves regarding the future of inflation despite the huge shipping costs due to tensions in the Red Sea. . Analyst at Swissquote Bank.
