Treasury Yields Slide Before CPI as Fed Cut Speculation Grows
Customers check out at a store in San Francisco.
(Bloomberg) -- Treasuries snapped a three-day losing streak as investors prepare for fresh US inflation data that may help determine the Federal Reserve’s next move on interest-rate cuts.
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The benchmark 10-year yield fell one basis point to 4.27%, while the rate for other tenors edged lower or was little changed Monday afternoon in New York. Traders were readying for the release of consumer price index figures on Tuesday, a key data point before the Fed’s meeting next month.
Policymakers and investors have been monitoring that data for signs of whether trade tariffs result in higher prices for consumer and companies, which could alter the Fed’s path on rate cuts. Bets on a reduction in September picked up momentum after a report showed weakness in the US labor market. There’s now a roughly 80% of a cut next month.
“The market is watching inflation with an intense focus because you have a data-dependent Fed,” said Amar Reganti, fixed income strategist at Hartford Funds. “That is being constrained by its dual mandate, which right now shows a weakening labor market and stickier inflation.”
Federal Reserve Governor Michelle Bowman, on Saturday, said she favors three rate cuts this year and urged fellow policymakers to reduce borrowing costs. Still, economists see inflation remaining sticky, with a Bloomberg poll showing that they expect CPI excluding volatile food and energy rose 0.3% in July, quickening from a 0.2% increase the prior month.
The inflation report “is important in determining the pass through of tariffs and markets continue to try and figure that out,” said Michael Cudzil, senior portfolio manager at Pimco.
Treasury yields have been whipsawed since the start of the month, rising last week as the Fed came under continued pressure from President Donald Trump to cut rates, while sluggish bond auctions raised concerns about demand.
At the same time, the weak payrolls reading has reignited speculation that the economy will require policy easing soon.
Activity in options markets has shown continued buying in a position that would benefit from a 50-basis-point reduction at the September meeting.
The dollar, meanwhile, has lost more than 1% so far in August, though it gained on Monday.
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