U.S. bond yields were little changed Friday ahead of inflation reports due in the next few trading sessions.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.281%
climbed by less than 1 basis point to 4.294%. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.488%
rose less than 1 basis point to 3.495%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.453%
climbed 1.7 basis points to 3.453%.
What’s driving markets
U.S. bond trading early on Friday was muted ahead of producer inflation data (PPI) set for release at 8:30 a.m. Eastern, and as investors looked ahead to the consumer price inflation report due next Tuesday.
Ten year Treasury yields sit just a few basis points above three-month lows. Since hitting a high around 4.25% this autumn, the benchmark has retreated by three-quarters of a percentage point on hopes a deteriorating economy will continue to push down consumer inflation that in June touched a 40-year peak of 9.1% and in October was down to 7.7%.
Bond bulls will hope to see inflationary pressures continuing to ease in the goods pipeline, and economists reckon the year-over-year PPI will dip from 8% in October to 7.2% last month.
Markets are pricing in a 74.7% probability that the Fed will raise its policy interest rate by another 50 basis points to a range of 4.25% to 4.50% after its meeting on Dec. 14, according to the CME FedWatch tool. The central bank is expected to take its Fed funds rate target to 4.92% by June 2023, according to 30-day Fed Funds futures.
Other U.S. economic data due for release on Friday include the University of Michigan sentiment index and 5-year inflation expectations for December alongside wholesale inventories for October at 10 a.m.. Third quarter real household wealth and real domestic debt growth will be published at noon. All times Eastern.
What are analysts saying
“Attention today will turn to another couple of data points that may give a steer on how aggressively the Fed will lift rates over the coming months,” said Henry Allen, strategist at Deutsche Bank. “Usually the producer price release gets less market attention compared with consumer prices, but in part that’s because the CPI number is normally out first. This month however, PPI is out first, so should offer a signal on inflation in November ahead of the all-important CPI release on Tuesday.”
“The second data point will be the preliminary reading on the University of Michigan’s consumer sentiment index for December. That fell back in November after having risen for the 4 previous months, so the question will be whether that was just a blip or the start of a more pronounced downturn,” Allen added.
“We’ll also get their measure of longer-term inflation expectations that is closely watched. That’s begun to tick back up over the last couple of months, so any further rises would be concerning from the Fed’s point of view, who thus far have been reassured by the fact that longer-term expectations have remained anchored,” Allen concluded.
