U.S. Bond Yields Decline

1 Mins read

Market Movements

  • The yield on the 2-year Treasury BX:TMUBMUSD02Y slid by 2.2 basis points to 4.691%.
  • The yield on the 10-year Treasury BX:TMUBMUSD10Y fell 1.6 basis points to 4.267%.
  • The yield on the 30-year Treasury BX:TMUBMUSD30Y dipped 1 basis point to 4.387%.

Market Trends

Benchmark Treasury yields have slightly decreased as investors eagerly await upcoming economic data releases that may influence Federal Reserve monetary policies.

Key Data Points

  • The personal consumption expenditure price index, a vital inflation measure for the Fed, is scheduled for release on Thursday.
  • Economic updates set for Tuesday include durable goods orders for January, S&P Case-Shiller home price index for December, and February’s consumer confidence report.
  • Fed Vice Chair for Supervision Michael Barr will speak at 9:05 a.m., with additional comments from colleagues throughout the week.

Market Expectations for Fed Interest Rates

Currently, markets are pricing in a 97.5% probability that the Federal Reserve will maintain interest rates at a range of 5.25% to 5.50% after its upcoming meeting on March 20th, according to the CME FedWatch tool.

Decreased Likelihood of Rate Cut in May

The likelihood of a 25 basis point rate cut at the following meeting in May is now priced at 17.3%, a significant decrease from 86% just a month ago. This shift comes after stronger than expected jobs and inflation data, as well as hawkish comments from Fed officials.

Treasury Auction of 7-Year Notes

The Treasury is set to auction $42 billion of 7-year notes at 1 p.m.

Insights from Analysts

Deutsche Bank’s Economics Team

The economics team at Deutsche Bank, led by Amy Yang, has highlighted the risks of financial conditions becoming less restrictive than necessary to further mitigate inflation. Recent analysis by Yang and her colleagues revealed that the easing of financial conditions since the fall has increased the probability of year-ahead inflation remaining above 2.5% from 30% to 40%.

In summary, the messaging from the Fed suggests a lower likelihood of rate cuts before June. Deutsche Bank’s baseline view remains at 100 basis points of cuts in 2024 starting at the June meeting. However, this outcome will require a resurgence of evidence indicating that inflation is moving in the right direction.

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