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U.S. government-debt yields rose Wednesday morning as traders continued to rein in bets on a swift reduction of borrowing costs by the Federal Reserve as soon as March.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
advanced 3 basis points to 4.358% from 4.328% on Tuesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 5 basis points to 3.994% from 3.944% Tuesday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
also climbed by 5 basis points to 4.134% from 4.084% late Tuesday.
What’s driving markets
On Wednesday, Richmond Fed President Tom Barkin said that the timing and pace of any changes in interest rates this year will be determined by conviction on whether inflation is still coming down and how well the economy is doing. His remarks came ahead of the 2 p.m. Eastern time release of the minutes from the central bank’s Dec. 12-13 policy meeting.
The market has started 2024 by questioning expectations that the Federal Reserve will begin cutting interest rates in March. The shift reflects concerns that investors may have misjudged the Fed’s desire to quickly trim rates in response to falling inflation.
Fed funds futures traders now see an 89.1% chance of the Fed leaving its benchmark rate between 5.25% to 5.50% on Jan. 31, according to the CME FedWatch Tool. In addition, the chance of at least a 25-basis-point rate cut by March is at 73.3%, down from 90.3% a week ago.
However, traders see an 88.9% chance of five to seven quarter-point rate cuts by December.
U.S. economic updates set for release on Wednesday include the job openings, or JOLTS, survey for November, alongside the December ISM manufacturing report, both due at 10 a.m. Eastern time.
What strategists are saying
While Powell clearly alluded to the possibility of easing at his post-meeting press conference last month, “Fed officials since the December FOMC meeting have pushed back on the idea of that happening imminently,” said Oscar Munoz, chief U.S. macro strategist at TD Securities.
“In that vein, we expect this week’s minutes to show that the FOMC is not entertaining the case for rate cuts just yet,” he wrote in a note on Tuesday.
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