Investors are closely watching the upcoming consumer price index (CPI) report for June, which is set to be released at 8:30 a.m. Eastern. As a result, bond yields experienced a decrease early Wednesday as traders positioned themselves ahead of this crucial data.
Here is a breakdown of the yield movement for various Treasury bonds:
- The yield on the 2-year Treasury TMUBMUSD02Y, 4.868% slipped by 1.3 basis points to 4.864%.
- The yield on the 10-year Treasury TMUBMUSD10Y, 3.947% retreated 3.1 basis points to 3.943%.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.991% fell 2.4 basis points to 3.988%.
Focus on CPI Report
The main focus of investors lies in the upcoming CPI report, particularly in its impact on inflation. Economists predict that annual headline CPI inflation will decrease from 4% in May to 3.1%, marking the slowest pace in over two years. Additionally, the month-on-month headline rate is expected to accelerate from 0.1% to 0.3%.
The core CPI, which excludes volatile prices such as food and energy, is projected to slow from 5.3% to 5% annually, with the month-on-month reading easing from 0.4% to 0.3%.
Implications for Bond Investors
Bond investors are hopeful that a favorable outcome from the CPI report will lead to an end of the Federal Reserve’s interest rate hike campaign. According to the CME FedWatch tool, market expectations indicate a 92% probability of a 25 basis point interest rate increase, bringing the range to 5.25% to 5.50%, following the Fed’s meeting on July 26.
However, it is not anticipated that the central bank will consider lowering its Fed funds rate target back to around 5% until May 2024, as indicated by 30-day Fed Funds futures.
Fed Officials and Beige Book Release
On Wednesday, several Federal Reserve officials will be making comments at different times throughout the day. Here is the schedule:
- Richmond Fed President Barkin will speak at 8:30 a.m.
- Minneapolis Fed President Kashkari will speak at 9:45 a.m.
- Atlanta Fed President Bostic will speak at 1 p.m.
In addition, the Fed Beige Book will be released at 2 p.m. (all times Eastern).
Analysts are closely monitoring the actions and statements of the Federal Reserve. Lindsey Piegza, chief economist at Stifel, shares her insights:
“While the Fed decided to take a temporary pause in June, Fed officials have expressed their intention to be more active later this month and possibly again before the year ends. Despite concerns about a possible recession or weaknesses in the banking sector, the main focus of the committee is to maintain stable price pressures, given that inflation levels are still high.”
Regarding the upcoming July FOMC meeting, Piegza emphasizes the importance of the latest CPI and PPI reports as key indicators for the Fed’s policy announcement:
“In the June minutes, it was evident that Fed officials are increasingly worried about the slow pace of inflation improvement. Inflation, although lower than its peak levels, remains more than double the Fed’s desired target. While one month’s data may not significantly influence their decision, an unexpected rise in inflation will undoubtedly solidify a rate hike in July and potentially pave the way for another increase in September after the pause.”
The analysis highlights the significance of these upcoming economic data releases in shaping the Federal Reserve’s monetary policy decisions.