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Bond yields fell on Wednesday as investors waited to see whether Federal Reserve Chair Jay Powell will give any further clues on likely interest rate trajectory at a gathering of central bankers in Portugal.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.732%
fell 1.6 basis points to 4.724%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.744%
retreated 2.3 basis points to 3.744%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.821%
fell 2.1 basis points to 3.821%.
What’s driving markets
It is a thin day for top-tier economic data — though advanced retail and wholesale inventories for May are due at 8:30 a.m. Eastern — and so U.S. traders will be casting an eye across the Atlantic to Sintra in Portugal, where the European Central Bank is holding its annual forum on central banking.
Of particular interest will be a panel including Federal Reserve Chair Jay Powell, alongside the heads of the U.K., eurozone and Japan central banks, scheduled to start at t 2:30 p.m. BST (9:30 a.m. Eastern).
Investors will be keen to see if Powell makes any reference to the likelihood of additional interest rate rises, give recent upbeat housing, durable goods and consumer confidence data.
Markets are pricing in a 77% probability that the Fed will raise interest rates by 25 basis points to a range of 5.25% to 5.50% after its meeting on July 26, according to the CME FedWatch tool.
The central bank is not expected to take its Fed funds rate target back down to around 5% until spring 2024, according to 30-day Fed Funds futures.
What are analysts saying
In a note published late Tuesday, Brian Daingerfield, head of G10 FX strategy, U.S. at Nat West Markets, gave his assessment of what may come out of Sintra.
“[T]he heads of the BoE, ECB, Fed, and BoJ speak together on a policy panel as each institution appears to be heading in a slightly different direction. To be sure, each of these central banks are just off the heels of a recent policy decision, meaning their Governors may not have any major signaling to deliver tomorrow,” he said.
“Instead, I expect a lot of focus on data dependence and a strong commitment to bring inflation durably to target. And that commitment tomorrow will come from both sides of the inflation mandate – as BoJ’s [Governor Kazuo] Ueda will be sounding a wholly different tone about what policy response is needed to bring inflation up to target, rather than down to target. Lost on few is the fact that heading into Ueda’s remarks in Sintra, USD/JPY is now trading at a fresh 2023 high above 144,” Daingerfield concluded.
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