DBS Group Research economist Eugene Leow notes that US Treasuries have been resilient despite headlines on China reducing US government debt exposure and higher Japanese government bond yields. With more than two Fed cuts priced out to end-2026, Leow argues USD rates already discount softer NFP and retail sales, and sees limited reaction to upcoming US CPI, as inflation is not yet an obstacle to rate cuts.

DBS sees limited CPI impact on USD rates

"US Treasuries shrugged off news that China has told banks to reduce exposure of US government debt and pressures arising from rising JGB yields."

"Focus returns to the key data sets due this week (retail sales due today, NFP on the 11th and CPI on the 13th). At current yield levels (more than two cuts priced out to end-2026), USD rates are probably already factoring in a somewhat lower-than-consensus NFP print (consensus: 68k) and retail sales figure (consensus: 0.4% MoM sa)."

"We do not think that USD rates will react much to CPI data due at the end of the week."

"Examining the inflation fixings over the coming year, we note that the market participants are expecting a relatively benign sequential inflation for the coming six months (about 2% annualized). However, the second half of the year is priced for an annualized 3.1% increase."

"The upshot is that inflation will not be an impediment for the Fed to cut rates in the coming few quarters, but that could shift further out."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)