Bond markets have been on a rollercoaster ride since a key inflation report from the US last week showed prices cooling for the first time in six months. While the initial reaction was a selloff in the bond market, expectations that the Fed would soon move to cut rates, activity in recent days has been more mixed as traders await further confirmation that inflation is well and truly kicked.
Canadian two-year yields were trading near their session lows late in Toronto after its consumer price index eased. Meanwhile, yields on benchmark 10-year Treasuries slid about 4 basis points as Federal Reserve Governor Christopher Waller described the latest report on US price pressures as “a reassuring signal.” The UK is set to release similar data on Wednesday, and German yields were also down a similar amount at 2.50%.
Stephen Bartolini, a fixed income portfolio manager at T. Rowe Price, said that Waller’s comments sound a little dovish, he’s a bit more downbeat on growth and he’s leaning on the next Fed move as being a rate cut. This combined with a couple of days of selling in the market gets us lower in yield here.” Canadian yields slipped to 4.15% after trading around 4.22% prior to the data, while UK yields dipped 4 basis points to 4.13%, with attention now turning to its inflation release. In Treasuries, a large block trade in two-year note futures added to gains in the front end of the curve before fading a little in late New York trade.
Waller’s comments come amidst swaths of Fed speak this week that add color to how the US central bank views the path back to 2% inflation. Markets are currently pricing in about 40 basis points of easing this year, with November being eyed for the first reduction in interest rates by many investors. While Waller said he needs to see “several more” months of good inflation figures before making interest rate cuts, his remarks were less hawkish than some had expected. Traders meanwhile boosted wagers on Bank of Canada rate cuts next month after Canada’s annual rate of core inflation eased for a fourth straight month
