U.S. 10-year yield steady at 4.15%... Market remains cautious ahead of CPI release

Source: BlockMedia Original Title: [New York Bonds] US 10-Year Treasury Steady at 4.15%…Market Waits Ahead of CPI Release Original Link: U.S. Treasury yields remained stable. Due to the 43-day federal government shutdown delaying economic data releases, the market is gauging the Federal Reserve(Fed)'s policy direction based on incomplete data. Meanwhile, the Fed is expected to maintain a cautious stance on further interest rate cuts for the time being.

The 10-year U.S. Treasury yield was recorded at 4.149%. The 2-year yield rose by 0.8bp(1bp=0.01% point) to 3.487%, and the spread between the 2-year and 10-year yields widened slightly to 66bp. Over the past few months, Treasury yields have fluctuated within a range without a clear direction.

Despite a slight cut in the recent benchmark interest rate, the Fed’s potential for additional cuts remains limited. This is due to the delayed release of some economic indicators caused by the 43-day federal shutdown, creating a gap in information for policy decisions.

November employment data showed an increase in the unemployment rate, but the reliability of the statistics was low, resulting in limited investor reaction. The market currently faces difficulty making clear judgments based on data, and unless there is a significantly negative or positive development, this stagnant trend may continue for some time.

The November Consumer Price Index(CPI), a key inflation indicator for the Fed, is scheduled for release and is expected to be a major turning point for future policy directions.

Within the Fed, dovish(accommodative) monetary policy signals have been reaffirmed. A Fed official stated at a forum, “While inflation remains high, there is no need to rush to cut rates,” and “We have room to gradually bring the policy rate back to a neutral level.”

Demand for government bonds within the yield range remained healthy. The U.S. Treasury auctioned $20 billion in 20-year bonds, with a bid-to-cover ratio of 2.67, the highest since October. The issuance rate was set at 4.798%, similar to current market rates before issuance.

The 2-year yield rose slightly to 3.487%, and the long-short spread showed a gentle steepening to about 66bp, indicating that the market is more sensitive to long-term economic outlooks than short-term policy rates.

The probability of the Fed further cutting the benchmark rate at the January meeting is currently low at 24%, with the market viewing a cut in April as more realistic. This is based on the expectation that unless the economy deteriorates sharply, the Fed will wait until clearer signals emerge before making further moves.