The yield on the US 10-year Treasury note steadied around 4.29%, holding close to two-week lows as investors braced for key US inflation data. This data could cement expectations for a Federal Reserve interest rate cut in September.

Market Expectations

Fed Chair Jerome Powell addressed Congress earlier this week, highlighting concerns about keeping policy restrictive for too long, which could stunt economic growth. Powell indicated that the central bank would not wait for inflation to hit 2% before considering rate cuts, as waiting too long could be detrimental. However, he emphasized that the Fed needs more supporting data showing that inflation is moving sustainably toward the 2% target before making any moves.

Current Market Sentiment

Markets currently see around a 70% chance of a Fed rate cut in September, with another reduction priced in before the year ends. This sentiment is influenced by Powell's remarks and the anticipation of incoming inflation data.

Upcoming Inflation Data

US consumer inflation data for June will be released later on Thursday, followed by producer inflation data on Friday. These reports are crucial as they will provide more insights into the inflation trend and help shape the Fed's monetary policy decisions.

Potential Impact on Treasury Yields

The steadiness of the 10-year Treasury yield at 4.29% reflects a cautious market stance. Investors are waiting for clearer signals from the inflation data, which could either reinforce or diminish the expectations of a Fed rate cut.

Federal Reserve's Position

Powell's comments suggest a more flexible approach to monetary policy, prioritizing economic growth while remaining vigilant about inflation. This balance aims to prevent over-tightening, which could harm the economy, and under-tightening, which could allow inflation to persist.

Economic Implications

The outcome of the inflation data release will have significant implications for the broader economy. If the data supports a continued decline in inflation, it could pave the way for the anticipated rate cuts, potentially boosting economic activity. Conversely, if inflation remains stubbornly high, the Fed may delay cuts, maintaining a restrictive stance for longer.

Market Reactions

Financial markets, including stocks and bonds, are likely to react to the new inflation data and any subsequent comments from Fed officials. The yield on the 10-year Treasury note is a critical indicator for investors, influencing borrowing costs, investment decisions, and overall market sentiment.

In summary, the yield on the US 10-year Treasury note holding at 4.29% reflects the market's anticipation of key US inflation data that could influence the Federal Reserve's interest rate decisions. With a high probability of a rate cut in September, investors are closely watching the upcoming consumer and producer inflation reports for clearer direction.

Also Read : Sensex and Nifty 50 Close Flat Amid Mixed Stock Performance on July 11

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst & Finance Saathi Telegram Channel for Regular Share Market, News & IPO Updates

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX & Upstox.