Bond Yields Hold Steady as Investors Await Economic Data

Bond yields remained relatively stable as investors digested consumer inflation data and anticipated updates on factory gate prices and retail sales. Here is a breakdown of what is happening:

Treasury Yields

• The yield on the 2-year Treasury (BX:TMUBMUSD02Y) saw minimal change, hovering at 4.990%. It's important to note that yields move in the opposite direction to prices.
• Meanwhile, the yield on the 10-year Treasury (BX:TMUBMUSD10Y) experienced a minor increase of less than 1 basis point, reaching 4.264%.
• The yield on the 30-year Treasury (BX:TMUBMUSD30Y) climbed by 1.6 basis points, settling at 4.360%.

Factors Influencing the Market

Bond yields have maintained stability throughout Thursday as traders absorb Wednesday's mixed reading on consumer price inflation and eagerly anticipate the release of the August producer prices data and retail sales numbers, both scheduled for 8:30 a.m. Eastern.

Additional economic updates for the United States that will be released today include the weekly initial jobless claims at 8:30 a.m. and July business inventories at 10 a.m..

Barring any significant surprises in these reports, the market is currently reflecting a 97% likelihood that the Federal Reserve will keep interest rates unchanged between 5.25% and 5.50% after its upcoming meeting on September 20.

According to the CME FedWatch tool, there is a 60% probability that the central bank will also maintain interest rates during the subsequent meeting in November.

ECB Policy Decision Awaited

German 10-year bund yields (BX:TMBMKDE-10Y) experienced a decrease of 1.3 basis points to 2.642% ahead of the European Central Bank’s policy decision. The decision is scheduled for 2:15 p.m. local time, or 8:15 a.m. Eastern.

Analyst Perspectives

According to Henry Allen, a strategist at Deutsche Bank, there is currently significant uncertainty surrounding whether the ECB will proceed with another interest rate hike following a series of nine consecutive moves. Market pricing data indicates a 66% likelihood of a 25 basis point hike, an increase from 38% recorded at the end of the previous week.

Economists on Bloomberg have narrowly suggested that the ECB will maintain the current interest rate, a viewpoint that aligns with the expectation of Deutsche Bank's European economists. Recent data suggests that tighter monetary policy is effectively being transmitted, favoring a pause in the interest rate hike cycle. Additionally, today's release of the ECB's latest growth and inflation forecasts will be significant to monitor.