Treasury yields look to resume the latest drop this week

<p>The latest retreat continues to weigh on yields, with bonds still catching a bid today in European morning trade. The drop last week comes after 10-year yields met its March highs near 4.09% before falling back below the key 4% threshold and here we are now, down roughly 30 bps from there to 3.78%.</p><p>The fall was validated by the softer US CPI report last week. However, traders are still seeing good odds of a 25 bps rate hike by the Fed next week. Fed funds futures are showing a ~96% probability of such a move. But when you look out to the curve into next year, there has been a climb down in market pricing as compared to two weeks ago:</p><p>Put together, that reflects a market perception that is less hawkish/more dovish on the Fed outlook. And that view is so far being vindicated by the data, or at least the most important one – that being the US CPI report.</p><p>If that trend continues, it should lead to lower yields and added pressure on the dollar unless we do see economic conditions deteriorate significantly and/or there is a change in the hawkish gears among other major central banks.</p>

This article was written by Justin Low at www.forexlive.com.