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Treasury yields pulled back Tuesday morning as investors awaited the latest reading on U.S. retail sales.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.612%
fell to 1.60%, down from 1.621% at 3 p.m. Eastern on Monday. -
The 2-year Treasury yield
TMUBMUSD02Y,
0.523%
declined to 0.516% versus 0.522% on Monday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
1.989%
was yielding 1.974% compared with 2.007% late Monday.
What’s driving the market?
Long-dated Treasury yields fell Monday, while the 2-year note was little moved after ending Friday at its highest since March 2020. A sharp rise in yields at the short end of the curve since September has reflected growing expectations the Federal Reserve will be forced to move more aggressively than it has signaled to squelch inflation that is running hotter and proving more persistent than expected.
The October reading of the U,.S. consumer price index last week showed a 6.2% year-over-year rise, the largest in nearly 31 years.
Longer dated yields have seen more of a sideways move, which analysts said reflects worries that an eventual effort by the Fed to rein in inflation could spark an economic downturn.
Investors will get data on October retail sales at 8:30 a.m. Eastern, which are expected to show a 1.5% rise. Excluding autos, sales are seen up 1%. Separately, the October import-price index is expected to show a 1% rise.
Data on U.S. October industrial production and capacity utilization is set for 9:15 a.m., while a November home builders’ index is scheduled for 10 a.m.
Richmond Fed President Tom Barkin said late Monday afternoon that he is content to wait a few more months before deciding if the central bank has to become more aggressive due to recent inflation trends.
“I personally think it is very helpful for us to have a few more months to evaluate,” said Barkin, during an interview on Yahoo Finance. Barkin is a voting member this year of the central bank’s policy-setting Federal Open Market Committee, but will not have a vote in 2022.
Earlier this month, the Fed decided to slow down, or “taper,” the pace of its asset purchases. Under the pace agreed to on Nov. 3, the Fed will be finished buying assets next June.
President Joe Biden and China’s Xi Jinping’s met virtually for more than three hours late Monday, with the leaders agreeing on the need to tread carefully as the two superpowers compete with each other.
What are analysts saying?
A retail sales report that meets or exceeds market forecasts “may fuel expectations over the Federal Reserve raising interest rates sooner than expected,” said Lukman Otunuga, senior research analyst at FXTM, in a note. “Traders are currently pricing in a 43% probability of at least one rate hike by early May 2022 and an 82% probability by mid-June next year. It will be interesting to see whether a robust retail sales report boosts the odds of a rate hike in May,” he wrote.
