U.S. government bond yields remained relatively unchanged early Thursday as traders awaited the release of the September consumer price index report.

Yields Movement

  • The yield on the 2-year Treasury fell slightly by less than 1 basis point to 4.999%. (Yields move inversely to prices).
  • The yield on the 10-year Treasury rose marginally by less than 1 basis point to 4.571%.
  • The yield on the 30-year Treasury increased by 1.7 basis points to 4.714%.

Key Market Drivers

Traders are focusing on the upcoming inflation update as it will provide fresh insights. The consumer price index for September is scheduled to be published at 8:30 a.m. Eastern Time. Economists anticipate a headline annual increase of 3.6%, which is a slight decrease from August's figure of 3.7%. The annual core CPI, which excludes more volatile items such as energy and food, is expected to rise by 4.1%, down from 4.3%.

Other economic updates set for release on Thursday include the weekly initial jobless claims report at 8:30 a.m..

Bond investors are hoping that if there is further evidence of easing inflationary pressures, it will support the current rally in fixed income. The 10-year Treasury yield has fallen approximately 30 basis points since reaching a 16-year high of around 4.86% last Friday.

The recent softer inflation data, combined with remarks from Fed officials suggesting that the central bank may have finished raising interest rates for this cycle, has contributed to the rebound in Treasury prices. Boston Fed President Susan Collins is scheduled to talk about the economic outlook at 4 p.m.

Market Expectations for Interest Rates

According to the CME FedWatch tool, markets are currently pricing in a 91% probability that the Federal Reserve will keep interest rates unchanged at a range of 5.25% to 5.50% after its upcoming meeting on November 1.

Decreased Likelihood of Rate Hike in December

The chances of a 25 basis point rate hike to a range of 5.50% to 5.75% at the subsequent meeting in December have decreased to 26% from 41% a month ago.

Long-Term Rate Outlook

Based on 30-day Fed Funds futures, it is anticipated that the central bank will not lower its target for the Fed funds rate back down to around 5% until August 2024.

Treasury Bond Auction

At 1 p.m., the Treasury will be holding an auction for $20 billion of 30-year bonds.

Analyst Insights

Noteworthy statements from area analysts include:

Impact of Producer Price Index

"While the warm headline readings in the producer price index released Wednesday may have been unwelcome, they are unlikely to significantly impact the market, particularly without a follow-through from the consumer price index (CPI) released later today," said Stephen Innes, managing partner at SPI Asset Management.

Potential Rate Hike Scenarios

"Even then, unless there is an unlikely blowout top in the CPI core reading, the recent evolution of policymakers' rhetoric and the substantial repricing of rates since the last policy meeting have done much of the FOMC heavy lifting, so there is no need to hike in November, and they are certainly not going to put a lump of coal in investors' stockings by hiking in December," Innes added.

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