Yields ignore hawkish Fed minutes as US inflation expectations contradict PCE data

US Treasury yields reversed from monthly high despite upbeat catalysts.
FOMC Minutes, Core PCE Inflation favored bond bears.
US inflation expectations drop back to three-week low.
Thanksgiving Day holiday restricts intraday moves, covid, inflation in focus.

With the US Thanksgiving Day restricting the market moves, Thursday’s Asian session becomes a dull affair. While portraying the mood, S&P 500 Futures print mild gains but the Treasury yields stay intact amid an off day in bond market. It’s worth noting that the chatters surrounding the Fed rate hike and coronavirus keep the driver’s seat of late.

That said, the US 10-year Treasury dropped 2.2 basis points (bps) to 1.64% after refreshing monthly high the previous day even as the Federal Open Market Committee (FOMC) Minutes said, “Some participants said faster taper could be warranted.”

Also on the positive side was a 30-year high print of the Fed’s preferred inflation gauge -- the US Personal Consumption Expenditures Price Index -- jumped to 5.0% YoY in October, surpassing 4.6% expected and 4.4% prior.

The reason for the bond buyers to keep the reins could be linked to the recently sluggish US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. The stated gauge reversed the previous day’s bounce off a three-week low on Wednesday to print a 2.61% level.

Other than the data and inflation expectations, fears of fresh coronavirus waves, mainly emanating from the Eurozone, also challenge the bond buyers and may soon renew the yields, likely underpinning the US dollar strength. Though, upbeat equities and lower gold prices may divert market players from the greenback.

To sum up, market sentiment is likely to remain cautious amid virus woes and Fed rate hike chatters even as the latest weakness in yields probe greenback bulls. For the day, a holiday in the US and a light calendar elsewhere will challenge the momentum traders and could trigger a consolidation.

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