- Bonds are in wait-and-see mode. The 10-year Treasury yield was down less than 1 basis point at 4.853% early Monday before edging up to 4.876% by 10:45 a.m. ET, while the 2-year rose to 4.564% and the 30-year sat at 5.267%, according to CNBC data.
- Inflation is the next hurdle. Consensus forecasts call for October’s annual consumer price index to rise to 3.9% from 3.7% in September, with core CPI expected at 2.8% from 2.6%, according to Trading Economics figures cited by CNBC.
- Friday’s jobs report still hangs over the market. Nonfarm payrolls rose by 165,000 in October against the 59,000 economists expected, nearly 2.8 times the forecast by our calculation, and the unemployment rate dipped to 4.1%, sending yields higher on Friday.
- Falling oil is a partial offset. WTI crude for December delivery slid more than 3% to $87 a barrel after President Donald Trump said fresh Iran attacks were “highly unlikely,” which could ease some energy-driven inflation pressure.
What Happened?
Treasury yields held near recent levels on Monday as investors looked ahead to a heavy week of inflation data. The 10-year note, the benchmark for mortgages, auto loans and credit card debt, started the day at 4.853% and drifted to 4.876% by mid-morning, CNBC data showed. The 2-year yield, which tracks Federal Reserve rate expectations more closely, was up more than 1 basis point early at 4.538% and later traded at 4.564%. The producer price index report, often an early read on consumer inflation, is due later in the week.
Why It Matters?
With headline CPI expected to accelerate for a second month and payrolls far above forecasts, the bond market has little room to price relief from the Fed. The gap between the 2-year and 10-year yields stood at about 31 basis points at 10:45 a.m. ET by our calculation, a modestly upward-sloping curve. A hotter CPI print would challenge any bullish duration bets, while a softer one, helped by oil’s retreat, could pull yields lower.
What’s Next?
Tuesday’s CPI release is the main event, followed by the PPI later in the week. Watch whether core inflation actually rises to 2.8% as expected, since a surprise in either direction could move the 2-year yield most. Oil’s path, tied to U.S.-Iran negotiations, is the other key input for inflation expectations and longer-dated yields.
Affected Tickers and Coins: TLT, IEF, SHY
Source: CNBC, CNBC Market Data
