Yields on 10-year US Treasury bonds – which move inversely to prices – they fell about 15 basis points just after the data was released, to later cut the decline to 10 and trade at 3.453%.
performance two yearswhich usually reflects better expectations regarding monetary policy, it fell more than 20 basis points to 4.189%.
The consumer price index rose 0.1% last month, after advancing 0.4% in Octoberthe Labor Department reported on Tuesday. Economists polled by Reuters had expected the CPI to rise 0.3%. In the 12 months to November, the CPI rose 7.1%, the smallest advance since December 2021.
Annual inflation is slowing in part as last year’s large increases are taken out of the calculation, while the Fed’s monetary tightening is also holding back demand.
The Fed has embarked on the most aggressive monetary policy tightening in 40 years this year to contain the biggest jump in inflation in decades, but its chairman, Jerome Powell, said last month that after four consecutive 75-point hikes basics, the pace of rate hikes could slow down in December.
Overall, the Fed is expected to raise rates 50 basis points on Wednesday.
The central bank’s less aggressive stance followed better-than-expected October consumer price data, fueling a rally in bonds in recent weeks.
Federal Reserve fund futures traders forecast the so-called terminal rate – the maximum interest rate next year – to stand at 4.8% in May. This figure is lower than forecasts of 4.98% before the release of the CPI data.
Federal Reserve Fund futures also point to a greater than 50% chance that the Federal Reserve will raise interest rates by a half point this week, with a minor rise of 25 basis points in February. Before the inflation report, traders were betting on a second half-point rise in February.
Meanwhile, the curve that compares the yields of the two-year and 10-year bonds flattened on Tuesday to -73.8 bp from -77 bp on Monday, although it remains in negative territory. An inversion in that part of the curve is considered a harbinger of a coming recession.
Source: Ambito
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