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Treasury bond yields drop: what it means ahead of consumer prices data

Vanguard S&P 500 ETF has weakened after comments from Treasury Secretary Janet Yellen

Bond yields dropped on Monday as markets await critical consumer prices data that could determine the rate at which the Federal Reserve will raise interest rates when it meets. The Fed will release consumer price index data on Tuesday, with producer prices expected on Wednesday.

Treasury yield bonds retreated  

The 10-year Treasury TMUBMUSD10Y, 3.278%, dropped 1.1 basis points to trade at 3.303%, while the 30-year Treasury TMUBMUSD30Y, 3.431% yield, remained unchanged at 3.45%. The two-year Treasury TMUBMUSD02Y, 3.515% yield was down 1.6 basis points to 3.544%. The ten-year to two-year spread o negative 24 basis points implies the yield will remain inverted, which signals an impending economic downturn.

The New York Fed’s Survey of Consumer Expectations will be the focus for markets. The survey outlines what consumers expect prices and inflation like for housing, gas, food, and education. Equally, the survey offers a perspective on employment prospects and earnings growth.

The inflation rate has slowed, but consumers are still struggling

According to recent data, inflation seems to slow, but consumers continue to struggle. The personal finance platform WalletHub indicates that over 30% of Americans struggle to pay energy bills.

Although the consumer price index is off its peak, the July figure of 8.5% year-on-year seems to be at almost 40-year highs and more than the Federal Reserve’s 2% target. As a result, the Fed has been emphasizing the need for aggressiveness in damping price compressions in recent weeks.

Chief US economist at High-Frequency Economics Rubeela Farooqi said that after the Fed officials delivered a hawkish message about inflation, they implied that expectation of a policy stance change because of growth concerns be misplaced. He added the focus this week will be the August CPI number, but it is uncertain whether the FOMC will not hike interest rates by 75 basis points in the coming week.

Hamrick: Fed wants benchmark rate in restrictive territory

According to analysts, the sudden pullback in US gas prices could be instrumental to the CPI figure to indicate a minimal drop in August. Bankrate analyst Mark Hamrick said that core inflation is still high at 6%, implying the Fed has to remain vigilant.

Hamrick said:

They want to take their benchmark rate into restrictive territory and hold it there for longer awaiting what Chairman Jerome Powell has said must be ‘compelling evidence that inflation is moving down, consistent with inflation returning to 2 percent.

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