On Hold: Traders Patient as Treasury Yields Stay Unmoved

There was minimal movement in bond yields on Wednesday morning as traders anticipated the release of the minutes from the Federal Reserve’s January meeting.

What’s happening

  • The 2-year Treasury yield fell by 2.9 basis points to 4.589%, with yields typically moving inversely to prices.
  • The rate on the 10-year Treasury bond dropped slightly to 4.274% by less than 1 basis point.
  • The 30-year Treasury bond’s yield, represented by the symbol BX:TMUBMUSD30Y, remained steady at 4.543%.

What’s driving markets

Investors were avoiding making risky investments before the release of the minutes from the Federal Reserve’s policy meeting on January 31st at 2 p.m. Eastern time.

Over the past few weeks, the benchmark 10-year Treasury yields have been trending towards the higher end of a range between 3.8% and 4.3%. This is due to stronger than anticipated inflation and job figures, which has led Federal Reserve officials to suggest that there may not be any rate cuts in March.

Analysts anticipate that the new minutes will show the same position.

Several Federal Reserve officials will be speaking on Wednesday, with Atlanta Fed President Raphael Bostic giving opening remarks at 8 a.m. Eastern time, Richmond Fed President Tom Barkin being interviewed on SiriusXM radio at 9:10 a.m., and Fed Gov. Michelle Bowman making comments at 1 p.m.

According to the CME FedWatch tool, markets have calculated a 93.5% chance that the Federal Reserve will keep interest rates steady between 5.25% and 5.50% after the meeting on March 20th.

There is a 37.2% probability of a rate cut of at least 25 basis points at the upcoming May meeting, which is a decrease from 84.7% a month ago. The Federal Reserve is predicted to lower its Fed funds rate target to around 4.5% by December 2024, as indicated by 30-day Fed Funds futures.

The Treasury will sell $16 billion worth of 20-year notes at 1 p.m. through an auction.

What are analysts saying

The economics team at Citi, led by Andrew Hollenhorst, anticipates that the first 25 basis point cut in interest rates by the Federal Reserve will likely occur in June, in line with market expectations.

They mentioned that the combination of strong job numbers and high inflation levels makes it challenging to justify reducing interest rates at this time, and this viewpoint will be evident in the minutes. Nevertheless, if the year-over-year core PCE data shows a decrease, it may persuade Federal Reserve officials to lower rates, regardless of ongoing economic activity.

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