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Inverse Relationship Between Yields and Prices: What the Latest Economic Indicators Mean for Interest Rates and Inflation

Investors ponder economic outlook as U.S. Treasury yields decline

Inverse Relationship Between Yields and Prices: What the Latest Economic Indicators Mean for Interest Rates and Inflation

The relationship between yields and prices is inversely proportional, meaning that when yields decrease, prices increase. A basis point equals 0.01%, and if a treasury bond’s yield decreases by one basis point, its price will increase.

Federal Reserve officials are closely monitoring the latest economic data to determine their outlook for interest rates. There is uncertainty about when and how often they will cut rates this year, as some policymakers believe there may be fewer than the previously forecasted three rate cuts.

Recent data has shown that durable goods orders rose more than expected in February, while consumer confidence has declined in optimism about the economy. On Wednesday, Fed Governor Christopher Waller is expected to give remarks on the state of the economy. Thursday will see important data released such as weekly initial jobless claims, the final reading of the US GDP for the fourth quarter, and consumer sentiment insights.

The most anticipated data of the week will be released on Friday, including the personal consumption expenditures price index – the Fed’s preferred inflation measure – as well as personal income and spending figures. Since markets are closed for Good Friday, traders’ reactions to this data will have to wait until next week.

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