Yields have continued to rise since the release of better-than-expected jobs data earlier in the month, which showed employers added 517,000 jobs in January. The unemployment rate reached 3.4%, its lowest level in 53 years.
This prompted many investors to recalibrate the odds that the Fed will raise its interest rate beyond the widely forecast 5.00-5.25% high ahead of the jobs data.
Addressing the jobs data last week, Fed Chairman Jerome Powell left the door open to raising the benchmark rate beyond 5.00-5.25%.
“We are now at a point in the cycle where the Fed is going to be more data dependent”said Eric Winograd, chief US economist at Alliance Bernstein.
“So between the major data releases, you’re in a holding pattern (…) Markets go up or down a couple of basis points, but it’s unlikely you’ll see any new trends emerge until you get the next big data point. “, he added.
Markets now await the release of the latest Consumer Price Index data on Tuesday. Economists polled by Reuters expect headline and core CPI to rise 0.4% mom in January.
Following the CPI report, the US Census Bureau will release the January retail sales report on Wednesday, another piece of data closely watched by the Fed and markets. Retail sales expected to rebound 1.6% in January after falling 1.1% in December, according to a Reuters poll of economists.
The yield curve between the two-year and 10-year notes inverted to -81.5 basis points, after reaching -88 basis points last week, the highest since December 13. The deep inversion in this part of the yield curve indicates concern about an impending recession.
Source: Ambito
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