Traders closely watch interest rate cuts as CPI stabilizes and US Treasury bond selling pauses
As investors focus on bond auctions and the Consumer Price Index (CPI), the decline in US Treasury bonds has paused. The yield on the 2-year Treasury bond fell to 3.94%, while the yield on the 10-year Treasury bond dropped to 3.99%. Strong non-farm payroll data has raised concerns about inflation, with the market expecting CPI data to show a slowdown in price increases. Mark Haefele, Chief Investment Officer at UBS, predicts that the Federal Reserve will cut interest rates by 50 basis points in November and December, and investors need to prepare for lower rates
According to the Smart Finance app, as investors turn their attention to bond auctions and the Consumer Price Index (CPI) for clues on the next steps of the Federal Reserve, the decline in US Treasury bonds has paused. Due to the market's reassessment and contraction of rate cut expectations in recent days, US government bonds have risen, with short-term bonds leading the gains. The yield on the two-year Treasury bond fell by as much as 6 basis points to 3.94%, while the yield on the 10-year Treasury bond fell by 3 basis points to 3.99%.
The strong non-farm payroll data released last week shocked traders who were betting heavily on another significant rate cut by the Federal Reserve this year, reigniting concerns about possible inflation. Currently, investors are mainly focused on the CPI data to be released on Thursday, which is expected to show a gradual slowdown in the pace of price increases. The market will also pay attention to the demand levels for the three-year and 10-year Treasury bond auctions to be held on Tuesday and Wednesday respectively.
Mark Haefele, Chief Investment Officer of UBS Global Wealth Management, stated: "US data has not been strong enough to suggest that the Fed's contribution to the global rate-cutting cycle is coming to an end."
Haefele said that investors still need to prepare for lower rates, expecting the Fed to cut rates by 50 basis points in November and December. He believes that inflation data will not pose any obstacles to further easing policies.
Traders are currently betting that by the end of this year, the Fed will cut rates by about 50 basis points, and by October 2025, it is expected to cut rates by less than 150 basis points. This is lower than the expectation of a 200 basis point rate cut at the end of September.
US Treasury bonds plummeted significantly on Monday, with key yields rising above 4%, the highest level since August last year, mainly due to the market reducing expectations of Fed rate cuts, which poured cold water on the bond-buying frenzy. Previously, bonds had risen for five consecutive months.
Patrick Armstrong, Chief Investment Officer of Plurimi Wealth, stated on Bloomberg TV: "The market's pricing of Fed rate cuts is indeed a bit ahead of itself." "I do believe that by 2025, inflation may once again become an issue."
Attention has once again turned to inflation trends, with Federal Reserve official Adriana Kugler stating that the Fed should focus on bringing inflation back to the 2% target, and she "strongly supports" the 50 basis point rate cut last month. Meanwhile, St. Louis Fed President Alberto Musalem warned that further rate cuts should be gradual