US Treasury 10-year yields (%) daily chart
The latest retreat continues to weigh on yields, with bonds still catching a bid today in European morning trade. The drop last week comes after 10-year yields met its March highs near 4.09% before falling back below the key 4% threshold and here we are now, down roughly 30 bps from there to 3.78%.
The fall was validated by the softer US CPI report last week. However, traders are still seeing good odds of a 25 bps rate hike by the Fed next week. Fed funds futures are showing a ~96% probability of such a move. But when you look out to the curve into next year, there has been a climb down in market pricing as compared to two weeks ago:
Put together, that reflects a market perception that is less hawkish/more dovish on the Fed outlook. And that view is so far being vindicated by the data, or at least the most important one – that being the US CPI report.
If that trend continues, it should lead to lower yields and added pressure on the dollar unless we do see economic conditions deteriorate significantly and/or there is a change in the hawkish gears among other major central banks.