Treasury yields declined early Monday in rangebound trade, as investors awaited a crucial week that includes a Federal Reserve policy decision, details on the U.S. government’s first-quarter borrowing needs and a December jobs report.
Investors are also keeping a close eye on the situation in the Middle East, after the U.S. vowed to retaliate for a weekend drone attack that killed three U.S. troops in Jordan, marking a significant escalation in tensions.
See: Biden vows retaliation after 3 Americans killed, dozens wounded in drone attack by Iran-backed militia in Jordan
Yield moves
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The yield on the 2-year Treasury note
BX:TMUBMUSD02Y
after ending last week at 4.365%. Yields and debt prices move opposite each other. -
The 10-year Treasury note
BX:TMUBMUSD10Y
yielded 4.104%, down from 4.159% at 3 p.m. ET on Friday. -
The yield on the 30-year Treasury bond
BX:TMUBMUSD30Y
declined to 4.343% versus 4.388% late Friday.
Market drivers
On Monday, the U.S. Treasury Department is set to reveal its revised forecast for first-quarter borrowing and a preliminary estimate of its second-quarter needs. That announcement will be followed with an auction schedule and other details on Wednesday.
See: Wall Street is counting on Treasury’s borrowing needs to trend lower between now and June
The Fed will conclude a two-day policy meeting on Wednesday afternoon. The central bank is seen as virtually certain to leave the fed-funds rate unchanged at 5.25% to 5.5%, but investors will key in on the policy statement and, in particular, remarks by Fed Chair Jerome Powell for clues to the timing of expected rate cuts.
Fed-funds futures traders have priced in a slightly better than 50% chance of a quarter-point cut by the Fed’s March 20 meeting and have priced in a better than 50% chance the fed-funds rate will fall to at least 3.75%-4% by December, according to the CME FedWatch tool.
Read: Fed decision: Powell will keep door open for first interest rate cut in March
Meanwhile, the December jobs report due on Friday will be watched for signs of cooling in the labor market.
Traders will also keep an eye on oil prices. U.S.
CL00,
and global
BRN00,
crude benchmarks rallied last week to their highest since November, boosted by concerns over tensions in the Middle East as well as U.S. production outages due to cold weather.
Oil futures spiked higher in Asian trading hours as investors reacted to the drone attack and U.S. military fatalities, but then pulled back.
What analysts say
“Powell probably won’t alter current market sentiment. The economy is holding up very well but inflation is evolving favorably as well,” analysts at KBC Bank in Brussels said in a client note.
“The Fed chair against that background probably isn’t in the mood for being outright hawkish. We think that anything bar the latter will prolong the dovish tide in markets,” they wrote.
