Gold rebounds on dollar retreat as Fed still seen cutting rates

March 13 – Gold prices rose on Wednesday, buoyed by a weaker dollar, as investors held on to hopes of a June rate cut by the Federal Reserve despite a hot US inflation print, while escalating geopolitical tensions kept bullion’s safe-haven demand intact.

Spot gold gained 0.8% to USD 2,174.96 per ounce, as of 3:10 p.m. EDT (1910 GMT).

US gold futures settled 0.7% higher at USD 2,180.8.

The dollar index was down 0.2%, making gold cheaper for overseas buyers.

“The situation for gold bulls right now is a win-win, if Fed cuts rates, gold jumps substantially, if they don’t cut rates, there will be concerns on inflation that could push gold higher,” Bob Haberkorn, senior market strategist at RJO Futures, said, adding that gold’s upside today shows buying on dips.

Bullion on Tuesday retreated from its record highs scaled last week, posting the worst single-day drop since Feb. 13, after a report showed US consumer prices rose sharply in February, indicating some stickiness in inflation.

Higher-than-expected inflation translates into more pressure on the Fed to keep interest rates elevated, weighing on non-yielding assets such as gold. The precious metal is also used as a hedge against inflation.

But traders continue to bet on interest rate cuts in June, pricing in about 65% chance compared to 72% before the CPI data, according to the CME Group’s FedWatch Tool.

“The Russia-Ukraine war and the (Israel-Hamas) conflict are baked into the price and have been for some time,” said Will Rhind, CEO of GraniteShares.

Gold would be further supported by “an escalation or new development, something material to put in focus the geopolitical risk aspect,” he said.

Focus is now on US retail sales, the producer price index and the weekly initial jobless claims, all of which are due on Thursday.

Spot platinum rose 1.5% to USD 938.02 per ounce, palladium gained 1.6% to USD 1,057.88 and silver was up over 3% at USD 25.00.

(Reporting by Anjana Anil in Bengaluru; Editing by Shilpi Majumdar, Shailesh Kuber and Krishna Chandra Eluri)

Oil prices up 3% to 4-month high on US crude stock drop, Russian refinery attacks

NEW YORK, March 13 – Oil prices rose about 3% to a four-month high on Wednesday on a surprise withdrawal in US crude inventories, a bigger-than-expected drop in US gasoline stocks, and potential supply disruptions after Ukrainian attacks on Russian refineries.

Brent futures rose USD 2.11, or 2.6%, to settle at USD 84.03 a barrel, while US West Texas Intermediate (WTI) crude rose USD 2.16, or 2.8%, to settle at USD 79.72.

That was the highest close for Brent since Nov. 6.

The US Energy Information Administration (EIA) said energy firms pulled a surprise 1.5 million barrels of crude from stockpiles during the week ended March 8.

That compares with the 1.3 million barrel build analysts forecast in a Reuters poll and the 5.5 million barrel withdrawal shown in data from the American Petroleum Institute (API), an industry group.

US gasoline futures, meanwhile, showed the biggest price increase across the energy complex, rising about 2.9% to their highest since September 2023 after EIA said energy firms pulled a much larger-than-expected 5.7 million barrels of gasoline from stockpiles last week.

That compares with the 1.9 million-barrel withdrawal from gasoline stocks that analysts forecast in a Reuters poll.

“Gasoline is driving us today. There is growing concerns about growing tightness with a combination of seasonal maintenance and other outages,” said Phil Flynn, an analyst at Price Futures Group.

That increase in gasoline prices boosted the gasoline-crack spreads, which measure refining profit margins, to their highest since August and September 2023, respectively.

In Russia, Ukraine struck oil refineries in a second day of heavy drone attacks, causing a fire at Rosneft’s biggest refinery in what Russian President Vladimir Putin said was an attempt to disrupt his country’s presidential election this week.

“As Russian refining capacity is damaged by Ukrainian drone strikes, this can result in Russia exporting less diesel fuel with a potential for Russia to start importing gasoline and that of course will affect prices around the world,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

Putin told the West that Russia was technically ready for nuclear war and that if the US sent troops to Ukraine, it would be considered a significant escalation of the conflict. Putin, however, also said he saw no need for the use of nuclear weapons in Ukraine.

Oil and the wider financial markets also found support from sentiment that the latest data on US inflation will not derail interest rate cuts by midyear.

Lower rates can boost economic growth and support oil demand.

The Organization of the Petroleum Exporting Countries (OPEC), meanwhile, stuck to its forecast for oil demand growth of 2.25 million barrels per day (bpd) in 2024, higher than many other forecasts.

The International Energy Agency (IEA), which expects demand growth to be much lower, updated its forecasts on Thursday.

(Reporting by Scott DiSavino in New York, Robert Harvey and Alex Lawler in London; additional reporting by and Laila Kearney in New York, Georgina McCartney in Houston, Katya Golubkova in Tokyo, and Jeslyn Lerh in Singapore; Editing by Jason Neely, Andrea Ricci and Jonathan Oatis)

Tech resilience vs sticky bond yields

March 13 – A tech-fueled whoosh pushed Wall Street higher on Tuesday, which should give Asian markets a good foundation to build on at the open on Wednesday, but spiking US bond yields on the back of hotter-than-expected US inflation data could limit the upside.

There’s nothing on the local economic and policy calendar likely to move the Asian market dial much on Wednesday, with only New Zealand food prices, Indian trade, and Indonesia consumer confidence data scheduled for release.

Investor sentiment across Asia seems to be holding up well. The MSCI Asia ex-Japan index rose nearly 1% to a seven-month high on Tuesday, Chinese stocks hit their highest in nearly four months, and the correction in Japan has fizzled out for now.

All that was before the rebound on Wall Street – the S&P 500 rose to a new record close and the Nasdaq gained 1.5%, boosted by a 7% bounce in market darling Nvidia and 12% surge in Oracle.

This was despite a solid rise in US bond yields – the 10-year yield chalked up its biggest increase in three weeks – after consumer inflation figures for February came in slightly hotter than expected.

US equities have not risen often on days when Treasuries have sold off, so it may be premature to read too much into it. But the bullish view would be that it highlights the confidence underpinning the market, the resilience of tech and AI, and the potential upside still to run.

The question for Asian markets is whether these tailwinds offset the headwinds of higher bond yields and a stronger dollar.

Improving domestic sentiment helped lift Chinese markets on Tuesday after the country’s No.2 property developer China Vanke said the impact of a Moody’s ratings downgrade on its financing activities was “controllable”.

Successfully tackling the property sector crisis is key to reviving wider economic growth, fighting off deflation, and reversing the torrent of capital outflows. It’s a tall order but the 13% rebound in Chinese stocks in the past month points to some degree of optimism.

Bank of Japan Governor Kazuo Ueda, meanwhile, cooled some of the bubbling optimism on Japan’s economy on Tuesday, telling lawmakers that the economy was recovering but also showing some signs of weakness.

The slightly bleaker remarks come ahead of the BOJ’s policy meeting next week where the board will debate whether the outlook is bright enough to phase out its massive monetary stimulus.

Ueda’s remarks helped push the two-year Japanese yield back from its 13-year high, while the yen had its biggest fall in a month.

Here are key developments that could provide more direction to markets on Wednesday:

– New Zealand food prices (February)

– India trade (February)

– Indonesia consumer confidence (February)

(By Jamie McGeever)

S&P 500 posts record high close as Oracle jumps, traders keep rate-cut bets

NEW YORK, March 12 – US stocks ended sharply higher on Tuesday, with the S&P 500 registering a record high close as Oracle shares surged and consumer price data failed to dampen investors’ hopes of interest rate cuts in the coming months.

Shares of Oracle jumped 11.7% and reached a record high, a day after it reported upbeat quarterly results and said it is set to make a joint announcement with artificial intelligence chip giant Nvidia.

Nvidia shares gained 7.2% and an index of semiconductors rose 2.1% and snapped a two-day losing streak.

The Labor Department reported that the Consumer Price Index (CPI) rose 0.4% last month after climbing 0.3% in January. Excluding volatile food and energy components, consumer prices increased 0.4% in February after rising by the same margin in January.

“Investors have gotten comfortable with the notion that it’s not about when the Fed will lower rates but rather by how much, and a delay – whether it happens in May like many were initially hoping or in September – ultimately doesn’t matter,” said Oliver Pursche, senior vice president and advisor for Wealthspire Advisors in Westport, Connecticut.

“It’s that they will and that a less restrictive environment is coming.”

Traders now see a 70% chance of the first rate cut coming in June, the CME FedWatch Tool showed, versus 71% ahead of the inflation report.

The Dow Jones Industrial Average rose 235.74 points, or 0.61%, to 39,005.4. The S&P 500 gained 57.3 points, or 1.12%, at 5,175.24 and the Nasdaq Composite added 246.36 points, or 1.54%, at 16,265.64.

“If you look at economic data, it continues to be pretty strong,” Pursche added. “And from my perspective as a consumer, employee and investor, I’d rather have a strong economy and slightly elevated interest rates than a weak economy that requires stimulus.”

Producer price data is due later this week.

On the downside, shares of Boeing fell 4.3%. Boeing told employees in a memo on Tuesday it is adding weekly compliance checks for every 737 factory work area and additional audits of equipment to reduce quality problems.

The US Federal Aviation Administration has curbed Boeing production following the mid-air panel blowout on a new Alaska Airlines 737 MAX 9 jet on Jan. 5.

Also, US carriers warned that their plans to increase capacity were in doubt due to jet delivery delays from Boeing.

Shares of Southwest Airlines were down 14.9%.

Volume on US exchanges was 10.97 billion shares, compared with the 12.07 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered decliners on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 1.20-to-1 ratio favored decliners.

The S&P 500 posted 48 new 52-week highs and no new lows; the Nasdaq Composite recorded 59 new highs and 118 new lows.

(Reporting by Caroline Valetkevitch; additional reporting by Bansari Mayur Kamdar and Shashwat Chauhan in Bengaluru; Editing by Rashmi Aich, Pooja Desai, and Richard Chang)

US dollar advances after firmer-than-expected inflation data

NEW YORK, March 12 – The US dollar rose in choppy trading on Tuesday, after data showed hotter-than-expected inflation last month for the world’s largest economy, slightly paring back expectations of an interest rate cut by the Federal Reserve at its June policy meeting.

It was a volatile session, with the US dollar initially jumping after the data, then falling and eventually rising after the market digested the report. The dollar index was last up 0.2% at 102.95.

The Labor Department report showed that the Consumer Price Index (CPI) rose 0.4% in February, in line with the forecast for a 0.4% increase. On a year-on-year basis, the CPI gained 3.2%, compared with the estimated 3.1% rise.

Excluding volatile food and energy components, the core figure rose 0.4% month-on-month in February, compared with an estimated 0.3% rise. Annually, it gained 3.8%, compared with the forecast of a 3.7% increase.

“The CPI wasn’t a significant surprise, but it’s firmer than expected. While some of the details of the report were encouraging, it still suggests that we’re not quite at the point that the Fed should be comfortable cutting rates,” said Vassili Serebriakov, FX strategist at UBS in New York.

“It probably keeps the debate alive about the June cut, but probably more immediately this plays into what the Fed will be projecting in terms of the dot plot at the next meeting. We’ll probably be discussing the possibility that there may be less than three cuts.”

US rate futures have priced in a 69% chance of a rate cut at the June policy meeting, according to the LSEG’s rate probability app. That was at roughly 71% late on Monday.

The market has also factored in two more cuts of 25 basis points each for the year, taking down the fed funds rate to 4.49% by the end of 2024.

Next on the agenda for currency investors would be US retail sales, an indication of consumer spending which has been resilient so far, and producer prices.

Against the yen, the dollar was up 0.5% at 147.66. The yen fell after Bank of Japan Governor Kazuo Ueda offered a slightly bleaker assessment of the country’s economy than he had in January, while Finance Minister Shunichi Suzuki said Japan was not at a stage where it could declare deflation as beaten.

Their remarks come ahead of the BOJ’s policy meeting next week.

Japan’s largest trade union confederation, Rengo, has demanded pay rises of 5.85% this year, topping 5% for the first time in 30 years.

One-week implied volatility on dollar/yen, which measures expectations for price swings in the currency pair, jumped to 12.115% on Tuesday, its highest level since December, and was last at 10.877.

Elsewhere, the euro was flat at USD 1.0925, after hitting a roughly two-month high last week.

Analysts expect the European Central Bank to communicate on Wednesday the outcome of discussions on the Eurosystem’s operational framework review.

Money markets fully price in a first ECB rate cut by June and a total of 100 basis points of easing by year-end.

In cryptocurrencies, bitcoin was down 1.3% to USD 71,197, but remained just a whisker away from a record high set in the previous session.

Ether peaked at USD 4,093.70, its highest since 2021, though later pared some of those gains to stand at USD 3,971.50, down 1.5%.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Herb Lash in New York and Stefano Rebaudo in Milan; Editing by Alex Richardson and Jonathan Oatis)

US yields rise as inflation stays sticky

March 12 – US Treasury yields rose on Tuesday after consumer price inflation for February came in slightly above economists’ expectations, raising concerns that the Federal Reserve may not be able to cut interest rates as soon as investors expect if price pressures remain elevated.

The 10-year Treasury yield got an extra lift after weak demand at the Treasury’s auction of USD 39 billion of the benchmark note.

The consumer price index (CPI) rose 0.4% last month amid higher costs for gasoline and shelter, and so-called core prices also gained 0.4%. On an annual basis, headline prices rose 3.2% while core prices gained 3.8%.

“Sticky inflation seems to be very much intact at this point,” said Phillip Colmar, global strategist at MRB Partners in New York. “This is problematic for the bond market and the Fed’s view that inflation’s ultimately coming down to that 2% target.”

Fed funds futures traders reduced bets that the Fed will cut by June to 69%, from 72% on Monday, according to the CME’s FedWatch.

Benchmark 10-year notes yields were last up 5.8 basis points (bps) on the day at 4.156%. Two-year yields gained 6.9 bps to 4.600%.

The inversion in the yield curve between two-year and 10-year notes was little changed at minus 44.4 bps.

Traders are closely watching data for signs of when the US central bank will cut rates as economic growth remains strong. Reports showing higher-than-expected inflation and employment in January had raised concerns that inflation could be reheating, though the data was also likely affected by seasonal factors.

The Fed is expected to hold rates steady when it meets on March 19-20, though traders will focus on Fed policymakers’ updated economic and interest rate projections.

Traders will now shift their focus to the Thursday release of February’s producer price index and initial jobless claims for the week ending March 8.

“In terms of implications for the Fed, while today’s report alone may not be enough to stop the Fed from cutting rates midyear, it should raise real questions about the extent to which inflation will move back to target absent some further easing in the labor market,” Tiffany Wilding, managing director and economist at PIMCO, said in a Tuesday note.

Also on Tuesday, the US Treasury held a 10-year auction that was poorly received. The high yield of 4.166% was more than the market expected at the bid deadline, suggesting that investors demanded a premium to absorb the note.

The bid-to-cover ratio, a gauge of demand, was 2.51, slightly lower than the February level of 2.56 and slightly above the 2.48 average.

“It was a bit surprising because that concession going into the auction didn’t seem to lead to spectacular results,” said Michael Lorizio, senior fixed-income trader at Manulife Investment Management.

“But it wasn’t read as an aggressive liquidity event. So pricing came in line with a small tail, and it gave us direction but it wasn’t an abandonment.”

The Treasury Department will next sell USD 22 billion in 30-year bonds US30YT=RR on Wednesday.

(Reporting by Matt Tracy and Karen Brettell; Additional reporting by Karen Brettell and Herbert Lash; editing by Jonathan Oatis)

Inverted yield curve no longer reliable recession flag, strategists say

BENGALURU, March 12 – A key indicator of an oncoming recession implied by the US bond market is no longer reliable, according to nearly two-thirds of strategists polled by Reuters.

A persistent negative spread between 2-year and 10-year US Treasury yields is a key input into many analysts’ models as a reliable predictor of recession, having occurred in the lead-up to nearly all recessions since 1955. It offered a false signal just once during that time.

The yield curve has been inverted for more than 20 months now – currently by 46 basis points – but most of the recent discussion in markets has been about the probability of no recession or even the risk of a re-acceleration in economic growth.

Nearly two-thirds of strategists in a March 6-12 Reuters poll of bond market experts, 22 of 34, said the yield curve’s predictive power is not what it once was.

“I feel the inverted yield curve is just not as good an indicator as before,” said Zhiwei Ren, portfolio manager at Penn Mutual Asset Management.

“If you have these two things going on together – insatiable demand for the long-end from real money like pension funds and the Fed keeping front-end rates higher because of the resilience of the economy – the curve will stay inverted for a while.”

Since the 2007-2008 global financial crisis, the Federal Reserve has on multiple occasions conducted aggressive buying of Treasury securities as part of is stimulus program, meaning it owns a much larger proportion of the market in its own portfolio than it did before.

Many observers have argued over recent years this ownership is distorting market pricing, although strategists interviewed to discuss the latest poll results did not mention suppressed yields via “quantitative easing” as a reason.

“The difficulty this time is that the policy rate is more than double the fed (funds rate’s) longer-run equilibrium, and it’s the magnitude and speed of rate hikes that have contributed to the inversion,” said Steve Major, global head of fixed income research at HSBC.

In the meantime, financial markets have aggressively scaled back bets this year on when the Fed will first cut interest rates, from March to May and now to June.

This has led several strategists to ramp up 12-month forecasts for the rate-sensitive 2-year Treasury note yield US2YT=RR by a median 21 basis higher than one month ago to 3.68%.

The benchmark 10-year Treasury note yield US10YT=RR, currently at 4.10%, too was seen falling only a modest 19 basis points to 3.91% by the end of August, and to 3.75% in a year, according to 60 strategists polled.

“Disinverting” the curve requires these short-term yields to fall much more sharply than longer-term ones, or for longer-term yields to rise.

In addition to a decision on when to cut, the Fed will soon have to judge when to slow and then finally stop unloading some of the securities it purchased through its massive “quantitative tightening” program.

Asked when the Fed would start slowing, or tapering, the pace of shrinkage of its balance sheet, 14 of 26 respondents said in June. Other responses ranged from March to December.

Seventeen of 26 said the Fed would conclude its tapering program either in the first quarter of 2025 or later.

(Reporting by Sarupya Ganguly; Polling by Anitta Sunil, Rahul Trivedi, and Sujith Pai; Editing by Ross Finley and Paul Simao)

Oil prices settle slightly down after US boosts crude output forecast

NEW YORK, March 12 – Oil prices dipped on Tuesday, settling slightly lower after a higher-than-expected forecast for US crude oil production and bearish economic data, but persistent geopolitical tensions limited declines.

Brent futures for May delivery settled 29 cents lower at USD 81.92 a barrel. The April US West Texas Intermediate (WTI) crude contract ended 37 cents lower at USD 77.56.

US consumer prices increased solidly in February, the US Bureau of Labor Statistics said, pinning nagging inflation largely on higher costs for gasoline and shelter.

“This does show a second month of an increase,” said Tim Snyder, an economist at Matador Economics, noting the numbers were still within expectations. “Consensus in the markets says the Fed will not move to lower rates until June,” he added.

On Tuesday, OPEC stuck to its forecast for relatively strong growth in global oil demand in 2024 and 2025, and further raised its economic growth forecast for this year saying there was more room for improvement.

On the supply side, US Energy Information Administration (EIA) raised its 2024 outlook for domestic oil output growth by 260,000 barrels per day to 13.19 million barrels, versus a previously forecast rise of 170,000 bpd.

The boosted forecast could be due to higher assumed oil prices, said UBS analyst Giovanni Staunovo.

US crude stocks fell 5.521 million barrels in the week ended Mar. 8, according to market sources citing American Petroleum Institute figures on Tuesday.

Official US government data is due on Wednesday.

Last week, economic data from China, the world’s biggest oil buyer, suggested softening demand even as crude imports increased in the first two months of the year from a year earlier.

“Bearish demand sentiment and growing non-OPEC supply leave little room for the market to be bullish on oil prices at this time,” said Serena Huang, head of APAC analysis at Vortexa.

GEOPOLITICAL TENSIONS

Hopes of a ceasefire in Israel’s war against Hamas have faded, with negotiations deadlocked in Cairo while Israel and Lebanon’s Hezbollah continue to exchange fire.

Though the Gaza conflict has not led to significant oil supply disruptions, Yemen’s Iran-aligned Houthis have been attacking ships in the Red Sea and Gulf of Aden since November in solidarity with Palestinians.

Airstrikes attributed to a US-British coalition hit port cities and small towns in western Yemen on Monday and the Houthis said on Tuesday that they had fired missiles at what they described as a US ship in the Red Sea.

Traders are becoming inured to such attacks, said John Evans at oil broker PVM.

“The inventory of oil that might be affected is not lost, it is just delayed – and with the new shipping times being part of the new norm, ‘delayed’ will eventually not be applicable,” he said.

In Russia, the world’s second-largest oil exporter, a Ukrainian attack on energy facilities set ablaze Lukoil’s NORSI refinery.

(Reporting by Nicole Jao in New York, Paul Carsten in London, Colleen Howe in Beijing, and Emily Chow in Singapore; Additional reporting by Natalie Grover in London; Editing by David Goodman, Alexandra Hudson, Andrea Ricci, Emelia Sithole-Matarise, and David Gregorio)

Stocks drift lower again, India CPI on deck

March 12 – With global markets gently easing back from recent highs ahead of US inflation data on Tuesday, Asian markets are unlikely to swing too far in either direction, although the Indian rupee and South Korean won could be exceptions to that rule.

Indian inflation and Bank of Korea meeting minutes top the regional economic calendar on Tuesday, which also includes Philippine trade and Malaysian industrial production figures, and Australian business confidence.

Japan’s top financial diplomat Masato Kanda is scheduled to speak too and as one of the country’s top voices on exchange rates, anything he says on the yen will be listened to attentively.

The yen has recovered from historically low levels recently, back in line with what Kanda and others might consider ‘fundamentals’ – it rose 2% against the dollar last week, its biggest rise since July.

This helped drive the Nikkei’s 2.2% slide on Monday, its biggest loss since October. Having reached a record high above 40,000 points last week, Japan’s benchmark index was always vulnerable to a correction.

That may have more to run as speculation intensifies that the Bank of Japan is about to make a landmark shift away from its ultra-loose policy. The BOJ said it made no purchases of exchange-traded funds on Monday despite the slide in Japanese stocks, stoking that speculation even further.

The broader correction in Asian equities on Monday was much shallower, however, thanks to a solid rise in China, and Wall Street’s decline was mild too. That said, the Nasdaq was again the biggest decliner of the three major US indices, and after sliding 5.5% on Friday market darling Nvidia fell another 2%.

Is risk appetite beginning to crumble? Perhaps, although bitcoin smashing through USD 70,000 to a record high USD 72,910 on Monday would suggest otherwise.

In China, authorities have asked banks to enhance financing support for state-backed China Vanke and called on creditors to consider private debt maturity extension, in a rare intervention from central government to help an embattled property firm.

There’s a long way to go but this news, exclusively reported by Reuters, could help bolster confidence that the property sector crisis has reached its nadir.

Elsewhere in Asia on Tuesday, Indian inflation figures are expected to show annual inflation cooled in February to a four-month low of 5.0%. Despite the easing, inflation has remained above the 4% mid-point of the central bank’s tolerance band of 2%-6% since September 2019.

The rupee has been one of Asia’s best-performing currencies this year, but from a low base – it is still languishing near its weakest-ever levels against the dollar.

Here are key developments that could provide more direction to markets on Tuesday:

– India consumer inflation (February)

– Bank of Korea minutes

– US consumer inflation (February)

(By Jamie McGeever)

US yields advance after declines last week, markets eye CPI

WASHINGTON, March 11 – US Treasury yields rebounded on Monday from last week’s decline, as investors consolidated positions ahead of a slew of economic data including the latest inflation and jobs figures.

The benchmark US 10-year Treasury yield on Monday was little changed to slightly higher at 4.096%, after declining for four straight days. US 30-year yields remained relatively flat at 4.261%.

On the shorter end of the curve, the two-year Treasury yield rose 4.8 basis points to 4.535% after also falling for four days in a row.

A slew of new corporate debt and Treasury bond issuance entered the market on Monday.

“Usually Monday is a very heavy new issue supply day,” said Tom di Galoma, co-head of global rates strategy at investment firm BTIG. “And so I think rates have risen both in Europe and in the US due in part to that.”

Wall Street dealers typically look to lock in borrowing costs for corporate bonds they are underwriting. As part of that process, dealers sell Treasuries as a hedge to lock in the borrowing cost before a bond sale. Once the bond is sold, the dealer buys Treasuries to exit the “rate lock.”

A closely watched part of the US Treasury yield curve measuring the gap between two- and 10-year Treasury yields, seen as an indicator of economic expectations, deepened its inversion to minus 44.2 bps, from minus 40.3 bps at Friday’s close.

An inverted yield curve historically is seen as a precursor of recession.

Investors are also looking ahead to several key economic datapoints this week which will further inform the Federal Reserve’s interest rate policy stance.

The market is pricing in a 97% chance of no rate cuts by the Fed following next week’s March FOMC meeting, CME’s FedWatch data showed. The reverse is the case for June’s meeting, with the market pricing in 70.2% odds of easing.

Perhaps most significant is Tuesday release of February’s consumer price index, which is expected to come in slightly higher than January’s prices on a headline basis but lower based on core prices.

February’s CPI “should alleviate concerns that inflation is reaccelerating after the January data,” BofA Global Research said in a report on Monday.

“Overall, a report in line with our expectations would keep the Fed on track to begin cutting rates at its June meeting,” BofA later added.

February’s producer price index will follow on Wednesday, in addition to initial jobless claims for the week ended March 8. Both readings are expected to align with the previous figures.

No Fed members are scheduled to speak this week, due to a blackout period ahead of next week’s March meeting.

On Monday, the US Treasury held an auction for USD 56 billion in three-year notes. It was well-received, with a high yield of 4.256%, below expectations at the bid deadline. This suggested that investors did not demand a premium to take down the note.

The bid-to-cover ratio, a gauge of demand, was 2.60, slightly above the February level of 2.58, but still a little lower than the 2.70 average.

The Treasury is also set to sell USD 39 billion in 10-year notes on Tuesday, followed by USD 22 billion in 30-year notes on Wednesday.

(Reporting by Matt Tracy; Editing by Ros Russell, Gertrude Chavez-Dreyfuss and Richard Chang)

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