[New York Bonds] US Inflation 'Relief'… 10-Year Treasury Yield Drops to 4.17%

Source: BlockMedia Original Title: [New York Bonds] US Inflation ‘Relieved’… 10-Year Treasury Yields Drop to 4.17% Original Link: https://www.blockmedia.co.kr/archives/1031854 The US December Consumer Price Index (CPI) aligned with market expectations, leading to a decline in Treasury yields in the New York bond market. While concerns about a re-acceleration of inflation eased somewhat, inflows into bonds persisted, and expectations regarding the Federal Reserve’s rate cut path remained largely unchanged.

According to the US Department of Labor, the December CPI increased by 0.3% month-over-month, matching the market forecast compiled by Reuters. The year-over-year increase also stood at 2.7%, the same as in November, aligning with market expectations. As inflation indicators stayed within expected ranges, the bond market showed signs of relief.

Consequently, the US 10-year Treasury yield, which serves as a benchmark for global interest rates, fell 2.4 basis points (bp) from the previous day to 4.175%. During trading, yields briefly dropped to the 4.16% range before slightly rebounding to close. The 10-year yield experienced a sharp decline after the inflation data release but then moved within a lower range, maintaining a stable trend.

Investors assessed that the extreme risk of ‘surging inflation’ has been somewhat alleviated. Bill Muresam, Head of Capital Markets Research at US Bank Asset Management, stated, “The figures today have a positive impact on the market by reducing the extreme risk of high inflation,” adding, “The bond market is responding gradually but stably.”

The 30-year Treasury yield declined 0.7bp to 4.833%, and the short-term 2-year Treasury yield also fell 1.7bp to 3.53%. Across all maturities, yields declined simultaneously, reflecting market reactions to easing inflation pressures.

Despite this inflation data, the Federal Reserve’s policy stance remains unclear. St. Louis Fed President Alberto Mussa remarked, “The gradual convergence of inflation toward the 2% target is encouraging,” but added, “There is still no reason to discuss additional rate cuts.”

Market expectations for the upcoming FOMC meeting on the 27th-28th reflect about a 97% chance of holding rates steady, and the probability of a 25bp cut at the March meeting has slightly decreased from 28.7% the previous day to 25.5% today.

Expectations for inflation as measured by Treasury Inflation-Protected Securities (TIPS) remained largely unchanged from the previous day. The 5-year breakeven inflation rate was 2.367%, similar to the previous day, while the 10-year breakeven rate stood at 2.299%, indicating that markets are pricing in an average inflation rate of about 2.3% over the next decade.

The 2-year to 10-year yield curve maintained a normal slope of approximately 64.3bp, suggesting that markets remain relatively optimistic about the possibility of a soft landing for the economy.