Treasury yields are falling in anticipation of the U.S. CPI release.
Treasury yields are relinquishing some of their recent gains ahead of tomorrow’s release of inflation data, as any unexpected outcome could significantly influence the likelihood of a Federal Reserve interest rate cut during the summer.
According to a consensus gathered in a Wall Street Journal survey, economists expect the core annual Consumer Price Index (CPI) for March to exhibit a slight deceleration to 3.7% from February’s 3.8%. This figure contrasts with the Federal Reserve’s target of 2% inflation.
Goldman Sachs economists, in a recent note, project further disinflation throughout the year, with an anticipation of the annual CPI decelerating to 3% by December.
Presently, the 10-year Treasury yield stands at 4.381%, while the two-year yield rests at 4.758%.
Financial conditions in the US have reverted to levels observed prior to the commencement of rate hikes.
Despite the lack of rate reductions, there has been a notable relaxation of financial conditions over the past few months.
The acceleration in the easing of financial conditions gained momentum after the Federal Reserve’s change in direction in December.
The renewed inflation data, encompassing CPI, PPI, and PCE, can be partially linked to the relaxation of financial conditions.
This pattern suggests a potential inclination towards an extended period of higher interest rates.
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