U.S. bond yields rose on Wednesday as traders continued to rein in bets on a swift reduction of borrowing costs by the Federal Reserve during 2024.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
added 1.7 basis points to 4.349%. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 4 basis points to 3.974%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
climbed by 3.5 basis points to 4.112%.
What’s driving markets
The market has started 2024 questioning hopes that the Federal Reserve will begin cutting interest rates in March, and will slice 150 basis points from borrowing costs his year.
The 2-year Treasury yield, which is particularly sensitive to Fed policy, is up to 4.35% after closing December around 4.25%. The 10-year yield, which tends to focus more on inflation trends, has risen over the same period from 3.88% to 3.98%.
Markets continue to price in the Fed leaving its benchmark rate at a range of 5.25% to 5.50% after its next meeting on January 31st, according to the CME FedWatch tool.
But the chances of at least a 25 basis point rate cut at the subsequent meeting in March is priced at 75%, down from 90.3% just a week ago. Similarly, the market is now only pricing in roughly five more 25 basis point cuts during 2024, when a week ago it saw six such cuts, or 150 basis points.
The shift reflects concerns that investors may have misjudged the Fed’s desire to quickly trim rates in response to inflation falling back towards its 2% target.
To that end, traders will be keen to see the contents of the minutes from the central bank’s December policy meeting when they are released at 2 p.m. Eastern. Richmond Fed President Tom Barkin is due to speak before that at 8:30 a.m.
“[W]hile Powell clearly alluded to the possibility of easing [at his post-meeting press conference], Fed officials since the Dec. FOMC meeting have pushed back on the idea of that happening imminently,” said Oscar Munoz, chief U.S. macro strategist at TD Securities.
“In that vein, we expect this week’s minutes to show that the FOMC is not entertaining the case for rate cuts just yet,” he added.
U.S. economic updates set for release on Wednesday include the job openings, or JOLTS, survey for November, alongside the December ISM manufacturing report, both due at 10 a.m. Eastern.
