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U.S. bond yields were little changed on Wednesday as traders waited for inflation data due for release in the next two sessions.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.312%
was barely changed at 4.295%. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.960%
was unchanged at 3.946%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.946%
rose less than 1 basis point to 3.933%.
What’s driving markets
Treasuries were struggling for momentum ahead of inflation data deemed critical to determining the likely trajectory of Federal Reserve interest rate hikes.
The Fed has raised borrowing costs from zero earlier this year to a range of 3% to 3.25% as it tries to damp inflation running at 40-year highs above 8%. The benchmark 10-year Treasury yield has climbed from about 1.80% in March to recently breach 4% for the first time since 2008.
Bond and equity investors alike have been eagerly seeking evidence that inflation has peaked, and therefore will be keen to parse the U.S. September producer price data due on Wednesday and the consumer price numbers on Thursday. Both are expected at 8:30 a.m. Eastern Time.
Economists forecast annual PPI inflation will fall from 8.7% in August to 8.3%, and CPI inflation to slip from 8.3% to 8.1%.
“Investors, and the world, desperately want soft U.S. inflation data to convince the Fed to soften its tone. Otherwise, the markets will continue being battered…and the economy being squeezed,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Markets are pricing in an 80% probability that the Fed will raise interest rates by another 75 basis points to a range of 3.75% to 4.00% after its meeting on November 2nd. The central bank is expected to take its Fed funds rate target to 4.66% by April 2023, according to the CME FedWatch tool.
Source: Investing.com
There’s more Fed policy makers speeches for traders to absorb on Wednesday. Minneapolis Fed President Neel Kashkari is due to speak at 12 noon ET, while Fed vice chair Michael Barr will speak at 1:45 p.m. The minutes of the Fed’s previous monetary policy setting meeting will be released at 2 p.m. and Fed governor Michelle Bowman will deliver comments at 6.30 pm. All Eastern Time.
Anxiety over ructions in the U.K. government bond market and sharp sentiment switches over the whether the Fed may “pivot” from its tightening strategy continued to be felt.
The ICE BofAML MOVE Index, a gauge of expected Treasury market volatility sat near its highest level since the great financial crisis.
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