US 10-year Treasury yields snap two-day uptrend amid cautious mood

• US 10-year Treasury yields retreats below 1.50% after two-day rise.
• Confusion over the Fed’s next moves amid recovering US inflation expectations weighs on sentiment.
• US Retail Sales will be the key ahead of Wednesday’s FOMC.

US 10-year Treasury yields, a popular gauge of market sentiment, drops 1.4 basis points (bps) to 1.48% amid the early Tuesday. In doing so, the risk barometer drops for the first time in three days amid indecision over the US Federal Reserve’s (Fed) next moves. The same should have ideally weighed on the US dollar index (DXY) but the greenback gauge seems to benefit from the risk-off mood by the press time.

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The recent recovery in the US inflation expectations, per data conveyed by the St. Louis Fed and New York Fed, could be traced to the latest weakness in the US T-bond yields. While New York Fed’s one-year inflation expectations jumped to a record high and the three-year gauge rose to an eight-year peak, St. Louis Fed’s inflation indicator for 10-years took a U-turn from a two-month low flashed on Friday.

It’s worth mentioning that the recovery in the inflation expectations questions the Fed policymakers’ recent outlook suggesting that the price pressure is the short-term challenge that does not push for any tapering and rate hikes. On the same line could be the recently positive US data, mainly relating to inflation as well as consumer sentiment.

Other than the reflation fears, chatters over the Delta variant of the coronavirus (COVID-19) and vaccine’s inability to tame the spread with one does pending also weigh on the market sentiment.

However, hopes from the US infrastructure spending and global policymakers’ push for more covid vaccine donation to the needy nations battle the pessimism, which in turn keeps S&P 500 Futures mildly bid around record top.

Although tomorrow’s FOMC becomes the key event, US Retail Sales for May, up for published today at 12:30 PM GMT, will also be important as traders gather extra proofs for probing the Fed members if they disappoint markets.

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