The U.S. Treasury yields dip ahead of the inflation and CPI readings on November 13

According to the CNBC Treasury yields monitoring tool, Treasury yields continue to dip as the U.S. financial space awaits the next inflation rate, consumer price index, and producer price data on November 13. The data, based on the economy’s performance in October, will shed light on the U.S. economic health.

Today, the 10-year Treasury yield fell by about 0.032%, reaching 4.3062% at a price of $99.5469. The percentage is lower compared to the yield 5 days ago, which was about 4.4490%. The 2-year Treasury yield has also dropped to 4.2519%, compared to the yield 5 days ago, which stood at 4.2990%.

Treasury yields spiked after Trump’s victory in the November 5 presidential elections. However, they dropped more on November 11 due to the anticipation of increased inflation rates in October. According to CNBC, the expected rise in the consumer price index is about 0.2%. The predicted increase would have boosted the year-on-year inflation rate to 2.5%. 

Core inflation, on the other hand, is expected to remain steady at 0.3% monthly and 3.3% yearly. The producer price index is expected to rise 0.3% in October while recording a 2.3% rise in the past year. 

The U.S. experiences the worst Treasury bond sell-off in years

Huge 30 year bond auction today at 1pm est$SPY $SPX $QQQ $VIX pic.twitter.com/dKIP7CCWrD

— Zero-Sums (@wizard_coder) November 6, 2024

The worst bond sell-off in the U.S. in five years happened last Wednesday following Trump’s reelection. The government sold about $25 billion of 30-year bonds, attracting bids of about $66 billion. The bonds were auctioned at 4.608%.

The yields, consequently, surged and saw their first gain after a multi-month bottom. Some economists said they were concerned after the steep rise, with one suggesting measures to prevent the yields from crossing the 4.5% mark.

Others explained that the rising yield caused the U.S. Dollar to strengthen. The Chief Investment Officer at GDS Wealth Management explained that the strengthening economy was an indicator of preparation for potential deficits in the U.S. budget. 

Economists fear that Trump’s policy changes might increase inflation

Economists are worried about the possibility that Trump’s monetary policy changes might influence a rise in inflation. So far, the Fed has been trying to push the inflation rate lower to get to its 2% target. The central bank has notably reached its target, hitting 2.4% in September. The Fed cut rates for the first time in 4 years on September 18 to work toward the goal. The central bank initiated another rate cut during the November 7 Federal Open Market Committee (FOMC) meeting. 

The Fed has been less aggressive in the November cut, settling on a 25-basis-point interest rate cut compared to September’s 50-basis-point rate cut. The latest cut placed the borrowing rate at 4.50% to 4.75%. The aim was to encourage U.S. citizens to borrow more while controlling printing money unnecessarily to avoid an inflation trigger. 

However, economists have argued that Trump’s policies could encourage an inflation rise despite the Fed’s efforts to keep it low. More importantly, several economists said that Trump’s tax cuts policy could trigger budget deficits and increase U.S. debts.

One economist mentioned that Trump has a history of undisciplined fiscal policies. The MD of fixed and strategic income at Eagle Asset Management, James Camp, argued that the deficits could be the headlines for the coming year.

“The risk in the market with Trump is an undisciplined fiscal situation. At some point in 2025, the deficit will grab the narrative of the market.”

–James Camp, MD of fixed and strategic income at Eagle Asset Management

The sentiment aligned with other economists’ worries after the massive bond sale as markets prepare for an inflation rise. Some economists also discussed the possibility of a higher bond distribution.