August CPI expected to continue to "add fuel" to the market, 2-year US Treasury yield hits lowest point since 2022
The August CPI is expected to continue to impact the market, pushing the two-year US Treasury yield to a low of 3.55% in 2022. The upcoming inflation data in the United States may solidify market expectations of a Fed rate cut. Although the market generally expects the Fed to cut rates on September 18th, the extent of the rate cut remains uncertain. Mizuho International strategists point out that the market may consolidate before the CPI is announced. Overall, the money market expects the Fed to cut rates by more than 110 basis points before the end of the year
Zhitong Finance APP noted that the price of US Treasury bonds rose, pushing the two-year US bond yield to its lowest level since 2022. The US is set to release highly anticipated inflation data, which could reinforce market bets on the extent of the Fed's rate cut this month.
The two-year US bond yield briefly fell by 5 basis points to 3.55%, the lowest level since September 2022. The inflation report scheduled to be released later on Wednesday is expected to show a 2.5% year-on-year increase in the US CPI for August, lower than July's 2.9%.
While the market generally expects the Fed to begin cutting rates at its meeting on September 18, the question is whether it will cut rates by 50 basis points to support the economy. Traders currently estimate the likelihood of this scenario at around 20%.
Rabobank International strategist Evelyne Gomez-Liechti said, "Clearly, the market wants to go long," "However, I think we have rebounded a lot already, and unless today's CPI unexpectedly declines, I expect the market to consolidate around current levels before the Fed meeting."
With increasing evidence that a soft job market and cooling inflation will pave the way for loose policies, US bonds have seen an impressive rebound this year. Powell's speech in August at Jackson Hole also boosted these expectations. He stated in his speech that the time for rate cuts has come.
The yield on the two-year US bond has dropped by nearly 1.5 percentage points from its peak in April. Overall, the money market expects the Fed to cut rates by more than 110 basis points by the end of this year and by 250 basis points over the next 12 months, which would push the upper limit of the federal funds rate to 3%.
Investors are also closely watching the impact of Tuesday's first US presidential debate between Harris and Trump. The two candidates debated economic conditions and US-China relations, with limited market reaction so far