US 10Y TREASURY: the FOMC

During the previous week markets full attention was on PCE data which were published on Friday. The PCE index rose 0.1% for the month, and 2.5% on a yearly basis, which was fully in line with market estimates. The evident slowdown in inflation in the US increased the probability that the Fed might make the first cut in September this year. The 10Y US benchmark yields were reflecting the investors sentiment during the week, moving from 4.3% at the start of the week, and ending it at 4.19%.

As the FOMC meeting is scheduled for the week ahead, some increased market volatility is quite expected. Market is not expecting that the Fed will cut rates during this meeting, however, any change in rhetoric of the Fed Chair Powell might trigger higher market volatility. At this moment, there is a high probability that the market will test 10Y yields for a potential for lower grounds from the level of 4.20%. Some short move to the levels above 4.20% is also possible, but these levels are not expected to hold for a longer period of time.