T-yields fall ahead of CPI data

Treasury yields retreated on Wednesday, on the eve of the key consumer price data release. The yield on benchmark 10-year Treasury notes fell 5.9 basis points to 3.560%. Yields move inversely to their price. The market expects inflation to ease and the Fed could cut interest rates by the end of 2023.

Yields on shorter-dated debt under two years were slightly higher earlier in the session as the front-end assumes the Fed will continue to raise rates and get to 5%, whether in February or by the end of March.

Most economists expect CPI for December to slow to 6.5% versus the prior reading; 7.1%. This would bring about a rally in equity and bond markets. If this happens, the Fed will get nearer its inflation goals.

Fed’s Susan Collins said she is inclined to raise interest rates by 25 basis points at the next policy meeting ending on February 1.