Treasury yields ticked lower Monday as traders cut the odds of a September Federal Reserve rate increase to a nearly 44% chance, down from 67% a week earlier. Attention now turns to Wednesday's core CPI report, which analysts say could tip the balance for the Fed's next move.
U.S. Treasury yields edged lower on Monday as investors positioned for a busy week of economic data headlined by Wednesday's core consumer price index report. The 10-year Treasury yield edged down Monday, falling just over one basis point, while the 30-year bond slipped by the same margin and the 2-year note held just above the flatline. A basis point equals 0.01%, and yields move opposite to prices.
Weak jobs data weakens Fed rate-hike odds
A softer-than-expected July nonfarm payrolls report last week already weakened expectations for further tightening. Deutsche Bank analysts said in a Monday note that the weak jobs data "reduced the urgency for further Fed tightening in the near term." Traders now price in a nearly 44% chance of a rate increase at the Fed's September meeting, down from 67% a week earlier, according to CME Group's FedWatch tool.
Wednesday's CPI report takes center stage
Core inflation data for July, which strips out volatile food and energy prices, lands Wednesday at 8:30 a.m. ET, followed by producer prices on Thursday and retail sales data on Friday. Deutsche Bank analysts added that the reading could go a long way toward tipping the balance for September policy pricing.
Estimates compiled by CoinDesk point to annual CPI cooling to 3.4% in July from 3.5% in June, with the monthly reading seen rising 0.1% after a 0.4% drop the prior month.
Strategists eye the dollar and geopolitical risk
ING strategists Chris Turner and Francesco Pesole expect a no-increase outcome to create a more supportive backdrop across asset classes, a view that would reverse if the CPI print runs hot and pushes Treasury yields and the dollar back into focus. Geopolitical instability adds another layer of uncertainty: with war in the Middle East threatening key oil shipping routes, inflation expectations could climb alongside expectations for further rate hikes.
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