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Bond yields held steady Thursday morning as traders continued to absorb minutes from the Federal Reserve’s latest rate-setting meeting.
What’s happening
-
The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.699%
was 4.691%, little changed from 4.697% on Thursday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.912%
advanced about 1 basis point to 3.930% from 3.922% as of Thursday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.897%
slipped to 3.920% from 3.927% as of late Thursday.
What’s driving markets
Treasury yields were steady after minutes of the Fed’s Jan. 31-Feb. 1 rate-setting meeting gave little indication the central bank would veer from its tighter-policy trajectory.
The firmer trend in yields was underpinned by news that eurozone inflation remains stubbornly high at 8.6% for January, pushing the 10-year benchmark German bund yield
TMBMKDE-10Y,
up briefly to as high as 2.556%.
Data released on Thursday showed that U.S. initial jobless claims stayed firmly below 200,000 for a sixth straight week, and the economy grew at a 2.7% revised annual pace at the end of 2022 or a touch slower than initially thought.
Markets are pricing in a 73% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5% on March 22, according to the CME FedWatch tool. Meanwhile, the chance of a 50 basis point hike is 27%, up from 1.3% a month ago.
The central bank is still mostly expected to take its fed-funds rate target to at least between 5.25% and 5.5% by June, according to 30-day Fed Funds futures. About a month ago, the “terminal rate” was seen at around 4.9%.
Read: The bond market’s worst-case scenario isn’t a Fed rate of 6%. It’s this.
What analysts are saying
“The typical end-cycle environment is coming into place — mixed economic signals with a downward bias combining with Fed policy focused on corralling inflation by reducing labor demand. Recession will result. Forget the Fed stopping to wait and watch and hope that inflation bends towards 2% without a recession. That horse has left the barn,” said Steven Blitz, an analyst at TS Lombard, in a note.
“It was good to read [in the Fed minutes] that they saw the funds rate only ‘moving toward a sufficiently restrictive stance of monetary policy.’ As I have long argued, rates have just gotten to the starting gate. The economic slowdown to date has had little to do with Fed policy (though they took their bows), but with the economy naturally slowing from its unsustainable 6% pace in 2021– created by fiscal transfer, reopening, and Fed underwriting. That was then, the Fed owns what happens next,” Blitz wrote.
