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Saturday, January 28, 2023

US Treasury yields fall sharply after November CPI data

Annual inflation is slowing somewhat due to last year’s big gains being taken out of the reckoning, while Fed tightening is also dampening demand.

The Fed began its most aggressive monetary policy tightening in 40 years this year to stave off the biggest jump in inflation in decades, but its chairman, Jerome Powell, said last month that after a string of 75 consecutive basis point hikes, a rate hike The pace of increase may slow down in December.

Overall, the Fed is expected to raise rates by 50 basis points on Wednesday.

The central bank’s less aggressive stance followed better-than-expected October consumer price data, leading to a rally in bonds in recent weeks.

Federal Reserve fund futures traders expect the so-called terminal rate – the maximum interest rate for next year – to be 4.85% in May. This figure is lower than the forecast of 4.98% before the release of CPI data.

Federal Reserve funds futures also point to a more than 50% chance that the Federal Reserve will raise interest rates by a half-point this week, on top of a modest increase of 25 basis points in February. Ahead of the inflation report, traders were betting on another half-point increase in February.

Meanwhile, the curve comparing the two-year and 10-year bond yields flattened from -77 bp to -72.6 bp on Monday, though it remains in negative territory. An inversion in that part of the curve is considered a harbinger of an impending recession.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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