Bond Report: Ten-year Treasury yields hold near two-week lows ahead of CPI inflation report

United States

U.S. government bond yields were little changed early Thursday as traders awaited the September consumer price index report.

What’s happening

  • The yield on the 2-year Treasury BX:TMUBMUSD02Y fell less than 1 basis point to 4.999%. Yields move in the opposite direction to prices.
  • The yield on the 10-year Treasury BX:TMUBMUSD10Y rose less than 1 basis point to 4.571%.
  • The yield on the 30-year Treasury BX:TMUBMUSD30Y added 1.7 basis points to 4.714%.

What’s driving markets

Traders’ focus Thursday will be concentrated on a fresh inflation update. The consumer prices index for September will be published at 8:30 a.m. Eastern, with economists expecting the headline annual increase of 3.6%, slowing from 3.7% in August. The annual core CPI, which strips out more volatile items like energy and food, is forecast to rise 4.1%, down from 4.3%.

Other U.S. economic updates set for release on Thursday include the weekly initial jobless claims report at 8:30 a.m..

Bond investors will be hoping that further evidence of easing inflationary pressures will help support a rally in fixed income that has seen the 10-year Treasury yield fall about 30 basis points since hitting a 16-year high around 4.86% on Friday.

Alongside softer inflation data in recent months, comments in the last few days from Fed officials suggesting the central bank has probably finished its rate hikes for this cycle have helped power the rebound in Treasury prices. Boston Fed President Susan Collins will talk about the economic outlook at 4 p.m.

Markets are pricing in a 91% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on November 1, according to the CME FedWatch tool.

The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in December is priced at 26%, down from 41% a month ago. The central bank is not expected to take its Fed funds rate target back down to around 5% until August 2024, according to 30-day Fed Funds futures.

The Treasury will auction $ 20 billion of 30-year bonds at 1 p.m.

What area analysts saying

“While the warm headline readings in the producer price index released Wednesday may have been unwelcome, they are unlikely to significantly impact the market, particularly without a follow-through from the consumer price index (CPI) released later today,” said Stephen Innes, managing partner at SPI Asset Management.

“Even then, unless there is an unlikely blowout top in the CPI core reading, the recent evolution of policymakers’ rhetoric and the substantial repricing of rates since the last policy meeting have done much of the FOMC heavy lifting, so there is no need to hike in November, and they are certainly not going to put a lump on coal in investors stockings by hiking in December,” Innes added.