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Treasury yields were mixed Tuesday morning as traders looked ahead to this week’s U.S. inflation data.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slid 4.3 basis points to 4.695%, from 4.738% on Monday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
fell 1.1 basis points to 4.287%, from 4.298% on Monday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was little changed at 4.418% versus Monday’s 3 p.m. level.
What’s driving markets
Data released on Tuesday showed that U.S. durable-goods orders sank 6.1% in January, although the decline looks bigger than it ordinarily would be because of a short lull in orders for passenger planes from Boeing.
Separately, home prices in the 20 biggest U.S. metros rose for the 11th month in a row and hit a record high during a persistent shortage of availability for resale homes. The S&P CoreLogic Case-Shiller 20-city house price index rose 0.2% in December compared with the previous month. And home prices in the 20 major U.S. metro markets were up 6.1% in the 12 months that ended in December.
Investors are awaiting further data this week that may help to shape the trajectory of Federal Reserve monetary policy. The first revision of U.S. GDP in the fourth quarter is due on Wednesday. And Thursday brings the personal consumption expenditure price index, the Fed’s favored inflation gauge.
For now, markets are pricing in a 97.5% probability that the Fed will leave interest rates unchanged at between 5.25% and 5.5% on March 20, according to the CME FedWatch Tool. The chance of at least a 25-basis-point rate cut by June is seen at 62.9%.
Treasury will auction $42 billion of 7-year notes at 1 p.m. Eastern time.
What analysts are saying
“The Treasury market is faced with dueling narratives that won’t convincingly resolve in either direction anytime soon. As a result, we’re unlikely to see anything beyond choppy range-trading behavior further out the curve,” said BMO Capital Markets strategists Ian Lyngen and Vail Hartman.
“The two primary camps in the U.S. rates market are 1.) January’s CPI [consumer-price index] was the anomaly and once the balance of Q1’s data is known, it will be clear that a Q2 rate cut is the most obvious outcome for the FOMC [Federal Open Market Committee] versus 2.) the market and Fed got too far ahead of themselves as was the case in 2023 and therefore rate cuts in 2024 are increasingly unlikely,” they wrote in a note on Tuesday.
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