Treasuries have not responded well to this morning’s data.
The 2-yr note yield is up 15 basis points to 4.87%, hurt by the specter of the Fed staying on a tightening path, and the 10-yr note yield is up 13 basis points to 3.84%, sensing that the effort to get inflation back down to 2.0% is going to be a difficult one.
Yesterday, Fed Chair Powell said he doesn’t think core inflation will be back to 2.0% until 2025.
The CME FedWatch Tool shows an 89.3% probability of a 25-basis points rate hike to 5.25-5.50% at the July FOMC meeting, versus 81.8% yesterday. Notably, though, there has been an uptick in expectations for another rate hike at the September FOMC meeting. It is still not the expected outcome, yet the probability of a second rate hike has risen to 25.0% from 16.4%.