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US Treasury yields displayed diverse movements during Monday’s trading session, marked by a pattern constrained within a specific range. Shorter-term yields experienced a modest decline as investors eagerly anticipated forthcoming inflation and retail sales data. That due later in the week. The results of this data are anticipated to shape market expectations concerning the potential need for an additional interest rate hike.
Wall Street economists, according to a Reuters poll, anticipate the consumer price index (CPI) headline figure to reveal a 0.1% increase in October. Signaling a deceleration from the 0.4% rise observed in September. Concurrently, the forecast for the core inflation figure remains stable at 0.3%, mirroring the previous month’s reading.
Earlier in the trading session, U.S. two-year and 10-year yields reached two-week highs before settling in the afternoon. Zachary Griffiths, Senior Investment Grade Strategist at CreditSights in Charlotte, North Carolina, noted the market’s reluctance to establish definitive positions. Emphasizing the pivotal role of the upcoming CPI data in shaping market sentiment.
Moody’s Downgrade and Shutdown Threat: Impact on US Treasury Yields
Moody’s recent decision to downgrade the outlook for US government debt on Friday initially resulted in an increase in U.S. yields. The credit rating agency attributed the downgrade to substantial fiscal deficits and a decrease in debt affordability, shifting the US AAA credit rating outlook from “stable” to “negative.” This follows Fitch’s earlier downgrade from AAA to AA+ in August.
The looming prospect of a partial government shutdown, scheduled to commence on Saturday in the absence of a stopgap spending bill from Congress, added an additional layer of uncertainty. Charlie Ripley, Senior Investment Strategist for Allianz Investment Management, highlighted the various factors contributing to the potential for rate increases throughout the week.
Also Read: US CPI Anticipating: Impact on Gold, EUR/USD and Nasdaq 100
Afternoon Stability: 10-Year Treasury at 4.634%
In the afternoon, the 10-year Treasury notes maintained stability with a yield of 4.634%, while U.S. two-year yields, signaling expectations for interest rates, declined by 3.1 basis points to reach 5.03%.
CreditSights’ Griffiths observed the market’s dynamic nature, expressing the perspective that inflation risks lean toward the downside. He suggested the possibility of an additional rally and a scenario termed a “bull flattener,” wherein long-term rates decrease more rapidly than short-term rates—a trend often signaling a potential Fed interest rate cut.
US Treasury Yield Curve Movement: Steepening on Monday, 30-Year Bond Sees Uptick
The US Treasury yields curve, measuring the spread between two- and 10-year Treasury notes, exhibited a reduction in inversion or a steepening to -39.80 bps on Monday. Meanwhile, the yield on the 30-year Treasury bond increased by 2 basis points to 4.753%.
Yields retraced from early highs following the release of the New York Fed’s Survey of Consumer Expectations. Which indicated a decrease in inflation expectations from 3.7% in September to 3.6% a year from now. Ian Lyngen, Head of U.S. Rates Strategy at BMO Capital Markets in New York, underscored that any unforeseen surge in inflation could potentially postpone rate cut forecasts until at least 2024.
