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An earlier version misstated the report coming from the Federal Reserve on Wednesday, which is the Beige Book.
Bond yields held their ground early Wednesday ahead of Federal Reserve minutes.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
fell less than 1 basis point to 4.953%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
was barely changed at 4.258%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was steady at 4.375%.
What’s driving markets
Treasury yields were steady early Wednesday, with traders eyeing the release at 2 p.m. Eastern of the Beige Book of economic anecdotes.
Ten-year benchmark yields are at the highest in two weeks having pushed back toward the 16-year peaks touched last month as rising oil prices revive the market’s inflation angst.
Investors also noted that the government bond complex has been pressured by a burst of supply from the corporate sector, with $36 billion of high grade paper sold on Tuesday alone, part of $120 billion of issuance due in September, according to Bloomberg.
U.S. economic updates set for release on Wednesday, include the trade deficit for July, due at 8:30 a.m., followed at 9:45 a.m. by the final reading of the S&P U.S. services PMI for August. The ISM services report for August will be released at 10 a.m.
Markets are pricing in a 93% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20, according to the CME FedWatch tool.
The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in November is priced at 43%, up from 26% a month ago.
The central bank is not expected to take its Fed funds rate target back down to around 5% until July 2024, according to 30-day Fed Funds futures.
What are analysts saying
“Despite the growing conviction that the economy will stick a soft landing, investors are increasingly concerned about the potential headwinds from rising debt levels, upcoming student loan bills, and shrinking savings,” said Jeffrey Roach, chief economist for LPL Financial.
“Markets will likely be a bit more volatile as investors interpret the data and process the Fed’s commentary surrounding the data. If the economic data become materially weaker and inflation does not reaccelerate, we expect the Fed to be approaching the end of their rate hiking campaign,” Roach added.
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