By Bond yields have experienced minimal movement recently, as investors have taken a cautious approach in anticipation of several potential market-moving events in the coming days.
Current Yields
- The yield on the 2-year Treasury (BX:TMUBMUSD02Y) rose by less than 1 basis point to 5.033%. It’s important to note that yields move inversely to prices.
- The yield on the 10-year Treasury (BX:TMUBMUSD10Y) increased by 2.3 basis points to 4.863%.
- The yield on the 30-year Treasury (BX:TMUBMUSD30Y) remained relatively unchanged at 5.024%.
Market Factors Driving Investor Sentiment
The limited activity in Treasuries at the start of the week indicates that traders are eagerly awaiting significant developments that could potentially impact the fixed income market.
- On Tuesday, the Bank of Japan is expected to announce their latest monetary policy decision. Any adjustments made to their yield curve control policy could have significant implications for the market.
- Wednesday will see the U.S. Treasury release its quarterly funding announcement, while the Federal Reserve will provide an update on their monetary policy.
- Market expectations currently suggest a 96% probability that the Federal Reserve will maintain interest rates within the range of 5.25% to 5.50% after their next meeting on November 1. This information is based on data from the CME FedWatch tool.
Chances of Rate Hike and Bank of England’s Decision
The likelihood of a 25 basis point rate hike to a range of 5.50 to 5.75% at the next meeting in December is currently priced at 24%. This estimate may vary depending on the statements made by Fed Chair Jay Powell during his post-announcement press conference.
On Thursday, the Bank of England is expected to keep rates unchanged.
Key Economic Data: October Nonfarm Payrolls Report
Friday will bring the release of the highly anticipated October nonfarm payrolls report.
Analysts’ Perspective
According to economists at Goldman Sachs led by Praveen Korapaty, they do not anticipate any policy changes from the Fed. Recent discussions within the Fed have emphasized the impact of higher long-term interest rates, which solidifies the belief that there will be no significant movement in yields following the November FOMC meeting.
Goldman Sachs’ team also predicts Treasury to announce $739 billion in private marketable borrowing as part of its quarterly refunding. Depending on the outcome, yield curves could experience slight flattening or steepening biases. The increase in risk premium recently observed enhances the risk/reward ratio when it comes to holding U.S. duration, especially over longer periods.
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