(Bloomberg) — Treasury yields slipped as investors brace for a key reading of US inflation that may bolster the case for the Federal Reserve to cut interest rates next month.
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The 10-year yield slipped 3 basis points to 4.26%, edging toward a three-month low of 4.18% touched last week. US CPI figures due on Tuesday will help determine whether the Fed is likely to cut rates at its next meeting in September, after weak jobs data raised concerns that the economy is slowing.
“Tomorrow’s US inflation report will garner the most macro attention and should help to pave the way for a Fed rate cut in September,” Commerzbank strategists wrote in a note, adding that US tariffs were having a limited impact on prices so far.
Their view chimes with comments from Federal Reserve Governor Michelle Bowman, who said she favors three rate cuts this year and urged fellow policymakers to reduce borrowing costs. Still, economists see inflation remaining sticky, with a Bloomberg poll showing that they expect CPI excluding volatile food and energy rose 0.3% in July, quickening from a 0.2% increase the prior month.
Treasury yields have been whipsawed since the start of the month, rising last week as the Fed came under continued pressure from President Donald Trump to cut rates, while sluggish bond auctions raised concerns about demand. At the same time, the weak payrolls reading has reignited speculation that the economy will require policy easing soon.
Traders are betting on a 82% possibility that the Fed will deliver a 25 basis point cut next month, with another easing fully discounted by the end of the year.
Investors will also look to data on US PPI, retail sales and international trade this week to gauge the need for more policy loosening. Ahead of planned talks between Washington and Moscow on the Russia-Ukraine war, moves in global oil prices are expected to dictate demand for haven assets.
Given the hefty roster of US economic data, investors are likely to remain focused on Fed policy. Questions over the institution’s independence have been swirling after Trump last week picked Stephen Miran, an ally and chair of the Council of Economic Adviser, to be a Fed governor.
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