By What’s Happening
- The yield on the 2-year Treasury BX:TMUBMUSD02Y climbed by 2.1 basis points to 4.953%. Yields move in the opposite direction to prices.
- The yield on the 10-year Treasury BX:TMUBMUSD10Y rose 2 basis points to 4.587%.
- The yield on the 30-year Treasury BX:TMUBMUSD30Y eased less than 1 basis point to 4.720%.
What’s Driving Markets
Benchmark 10-year Treasury yields are slightly higher today, but still remain over 40 basis points below the 16-year highs reached last month.
According to Ipek Ozkardeskaya of Swissquote Bank, despite some Federal Reserve officials indicating that the central bank’s battle against inflation is ongoing and tightening measures could continue, the 10-year yield on Tuesday dipped below key technical support levels.
She added, “The U.S. 10-year yield fell below its 50-day moving average, the 2-year yield remained below the 5% mark, and the gap between the two is widening again due to dovish Fed expectations fueled by last week’s soft U.S. jobs data and the Fed’s decision to pause for another month.“
Investors will closely watch the Treasury’s $40 billion auction of 10-year notes at 1 p.m. This auction size is nearly double the size of similar auctions in the decade before COVID, as pointed out by analysts at Saxo Bank.
Analysis: Investors’ Response to Lower Yields and Flattening Yield Curves
Investors are facing a crucial decision on whether to extend the duration of their investments despite lower yields. Although the yield curves are currently flattening, experts at Saxo remain optimistic about the potential for steepeners in the mid and long-term.
Key Events: Fed Officials’ Speeches and Market Expectations
Various Federal Reserve officials are scheduled to make important comments on Wednesday. The events include Chair Jay Powell’s opening remarks at a Fed research conference at 9:15 a.m., Fed Bank of New York President John Williams delivering the keynote speech at 1:40 p.m, Fed Vice Chair for Supervision Michael Barr speaking at the NAHB conference at 2 p.m., and Fed Vice Chair Phillip Jefferson concluding with closing remarks at the research conference at 4:45 p.m. Additionally, Powell will participate in a panel discussion on Thursday.
Market Expectations: Rate Outlook and Predictions
Ahead of these key events, market indicators suggest a 90% probability that the Federal Reserve will keep interest rates unchanged within a range of 5.25% to 5.50% after its upcoming meeting on December 13th, according to the CME FedWatch tool. The probability of a 25 basis point rate hike to a range of 5.50% to 5.75% at the subsequent meeting in late January is currently priced at 16%. It is widely anticipated that the central bank will maintain its Fed funds rate target until July 2024, possibly gradually lowering it back to around 5%, as indicated by the 30-day Fed Funds futures.
Economic Updates: Wholesale Inventories for September
On Wednesday, U.S. economic updates are expected to include the release of wholesale inventories for September, scheduled for 10 a.m. Eastern Time.
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