Bonds wrapped up the week at an almost two-month high after recovering from a dip following modest inflation figures last week. The benchmark 10-year Treasury yields hit 4.195%, their highest level since January 25, while two-year notes hit 4.499%; the highest level since December 13.
Markets are shifting their attention to Tuesday’s Consumer Price Index (CPI) report for January, which is expected to provide clues as to the Federal Reserve’s next interest rate policy decision. “The market is still trying to get a sense of how much the Fed can lower interest rates and how quickly, and I think a softer CPI reading next week would certainly go a long way in encouraging the Fed that inflation is under control,” Gennadiy Goldberg, the head of U.S. rates strategy at TD Securities observed.
Given current economic conditions, traders are pricing an 18% chance that the Fed will implement a rate cut in March, down from 64% last month. A 58% chance of a May rate cut has been priced.