US | Treasury yields soar amid a lack of further progress on inflation so far this year

Summary

A third-in-a-row 0.4% MoM core CPI inflation reading for March following strong jobs reports added to a series of hot data that suggest a rate cut soon is off the table amid increased odds for less than three rate cuts this year.

Key points

• Key points:
• 2- and 10-year Treasury yields are now 25 and 35 bps higher than last month’s after pricing in that the policy stance will likely need to remain restrictive for longer.
• The stability of 3- and 6-month Treasury yields below 5.5% reflects the relatively low risk priced in by financial markets that the Fed will need to hike rates at any of the upcoming meetings.
• The single-day 20bp jump in the 10-year Treasury yield following the latest CPI report was the largest since September 2022, which was echoed by volatility indexes.
• The implied probability in the futures market of at least three rate cuts this year went from 77% a month ago to 23% after the most recent stronger-than-expected CPI inflation report.
• While the Fed expected “some unevenness” in monthly inflation readings, the most recent economic data suggest a rate cut in the upcoming meetings is likely off the table.

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