U.S. Treasury yields fell on Wednesday as investors considered what could be ahead for inflation and how this could affect interest rates and the overall economy.
The yield on the 10-year Treasury was down by more than 2 basis points to 3.996% after hovering around the 4% mark throughout the beginning of the week. The 2-year Treasury yield was last nearly 3 basis points lower at 4.341%.
Yields and prices have an inverted relationship and one basis point equals 0.01%.
Investors braced themselves for the release of inflation data on Thursday and Friday that could inform the Federal Reserve’s interest rate policy plans.
December’s consumer price index is due Thursday ahead of the producer price index, which tracks wholesale prices, on Friday.
Investors are hoping that the figures will reflect that inflationary pressures are easing as this could indicate that elevated interest rates are taking effect and rates could be cut soon, or at least not go any higher.
The Federal Reserve’s meeting minutes published earlier this month suggested that policymakers believe rate cuts this year are likely, but significant uncertainty about monetary policy remains. Some officials also did not exclude the possibility of further rate hikes depending on how the economy develops, the minutes showed.
The Fed has not provided a timeline on when rates may be cut, though many investors are hoping the first cut could come as soon as March, when the Fed’s second meeting of the year will take place. Markets are widely expecting rates to remain unchanged for what would be the fourth time in a row at the Fed’s January meeting, which is due to take place on Jan. 30-31.
