Treasury yields fell slightly on early Tuesday trading ahead of October’s consumer prices data, a potential pivot point for investors who hold the Federal Reserve’s steady rate hikes responsible for the bond market’s selloff this year.
The 10-year Treasury note yield TMUBMUSD10Y, +0.44% was down 0.7 basis point to 3.138%. The 2-year note yield TMUBMUSD02Y, +0.29% was flat at 2.895%, while the 30-year bond yield TMUBMUSD30Y, +0.41% gave up 1.2 basis points to 3.355%. Bond prices move in the opposite direction of yields.
Inflation will dominate the trading agenda as investors remain wary of the Fed’s rate hikes that have plunged most of the bond market in the red this year, sparked a turbulent selloff in stocks, and spread panic in emerging markets used to ultralow U.S. interest rates. But the recent slump in oil prices could arrest the uptrend in inflation data—if only on a short-term basis— that has kept the Fed hiking at its steady pace.
Yet even if inflation takes a hit from crude’s tumble, the central bank should see through the weakness in the oil market and focus on the core reading, the inflation gauge stripping out for volatile food and energy values. Economists polled by MarketWatch anticipate consumer prices to rise 0.3% in October, and the core measure to log an 0.2% increase.
“The core inflation data remain much more important for the monetary policy outlook than the headline data,” wrote Jim O’ Sullivan, chief economist for High Frequency Economics.
Yields for U.S. government bonds gave up much of their climb in November amid weakness in stocks, geopolitical squabbles over Britain’s departure over the European Union, and Italy’s fiscal clash with the European Union.
For now, investors are monitoring the progress of a potential withdrawal agreement, over which Prime Minister Theresa May will discuss with her senior ministers on Wednesday. Even after making a major breakthrough on the Northern Ireland border issue, skeptics worry the deal will face an uphill battle to make it through parliament.
See: Brexit deal faces hurdle as U.K.’s May must sell to divided government
On the Fed front, Fed Chairman Jerome Powell and Dallas Fed President Robert Kaplan is set to speak at 5 p.m. Eastern.
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