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Bond Report: Treasury yields hold steady ahead of Tuesday’s CPI inflation data for November

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Treasury yields finished little changed on Monday following a pair of government-debt auctions that produced lackluster demand.

What’s happening

The yield on the 2-year Treasury 
BX:TMUBMUSD02Y
 ended unchanged at 4.725% versus Friday’s 3 p.m. Eastern time level. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
BX:TMUBMUSD10Y
fell less than 1 basis point to 4.238% from 4.244% Friday afternoon.

The yield on the 30-year Treasury
BX:TMUBMUSD30Y
rose less than 1 basis point to 4.329% from 4.325% late Friday.

What’s driving markets

The U.S. government-debt market absorbed two auctions on Monday. One was Treasury’s $37 billion sale of 10-year debt, which came in weak, and the other was a $50 billion sale of 3-year notes, which was met with poor demand.

One last round of consumer price data is set to be released on Tuesday. November’s CPI is expected by economists to show softer headline inflation, but a firmer core reading after stripping out food and energy prices.

See also: Inflation traders expect annual core CPI rate to linger a bit above 2% through October 2024

On Wednesday, Federal Reserve policy makers are expected to hold interest rates steady between 5.25%-5.5%, though investors will carefully monitor comments from Chairman Jerome Powell.

Last Friday’s strong jobs data prompted traders to lower their expectations for the first Federal Reserve interest-rate cut next year. Fed-funds futures traders now see a 43.7% chance of at least a 25-basis-point cut by March versus 57.4% a week ago, according to the CME FedWatch Tool.

What analysts are saying

“We expect the FOMC to leave the fed funds rate unchanged this week for the third consecutive meeting,” said David Doyle, Macquarie’s head of economics. “There may be some incremental changes to the statement language to reflect signs of slowing growth. Forward guidance may also be slightly adjusted.”

“Any language tweaks may make more ambiguous the prospect of further hikes, while also not closing the door on such a potential path,” Doyle said in an email. “This would be a continuation of the diminishing hawkish bias that became apparent in the Chair’s press conference in November.”

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