Market Update
- The yield on the 2-year Treasury BX:TMUBMUSD02Y decreased by 1.2 basis points to 4.400%.
- The yield on the 10-year Treasury BX:TMUBMUSD10Y fell slightly by less than 1 basis point to 4.095%.
- The yield on the 30-year Treasury BX:TMUBMUSD30Y remained relatively stable at 4.301%.
Market Factors
The benchmark 10-year Treasury yield continues to hover around the 4.1% level as bond markets experience calmer conditions. Investors seem to have accepted, at least for now, the possibility that the Federal Reserve will not reduce interest rates until around May.
One potential reason for the suppression of yields could be concerns about the fragility of the commercial real estate sector. Moody’s recently downgraded New York Community Bancorp’s debt to junk, raising worries of contagion. However, experts have noted that there is currently little sign of this affecting regional banks.
The decision to move away from a potential rate cut in March is influenced by stronger-than-expected jobs and service sector data, as well as comments from various Federal Reserve officials. These officials have suggested that an immediate easing of policy next month would be premature, particularly considering that consumer price inflation is still 140 basis points higher than the central bank’s target of 2%.
Federal Reserve Officials and Market Expectations
On Wednesday, several Federal Reserve officials will be making comments regarding policy and the economic outlook.
New Fed Governor Adriana Kugler
Newly appointed Fed Governor, Adriana Kugler, is scheduled to speak at 11 a.m., addressing policy and the economic outlook.
Boston Fed President Susan Collins
Boston Fed President, Susan Collins, will discuss the economic outlook at 11:30 a.m.
Richmond Fed President Tom Barkin
Richmond Fed President, Tom Barkin, will be speaking to the Economic Club of Washington, DC at 12:30 p.m.
Fed Governor Michelle Bowman
Fed Governor Michelle Bowman will share her insights on supporting small businesses at 2 p.m.
Additionally, according to the CME FedWatch tool, the market is currently pricing in a 79.5% probability that the Federal Reserve will maintain interest rates within the range of 5.25% to 5.50% after its upcoming meeting on March 20th.
The market also suggests a 68.1% likelihood of at least a 25 basis point rate cut by the subsequent meeting in May. According to 30-day Fed Funds futures, it is expected that the central bank will decrease its Fed funds rate target to around 4.20% by December 2024.
Economic Updates and Treasury Auction
On Wednesday, there are several U.S. economic updates scheduled for release. These include the trade deficit for December at 8:30 a.m. Eastern and January consumer credit at 3 p.m.
Furthermore, the Treasury will be conducting an auction of $42 billion worth of 10-year notes at 1 p.m.
Analyst Perspectives
According to Jim Reid, a strategist at Deutsche Bank, the upcoming major events to watch out for are the 10-year Treasury auction and U.S. CPI revisions on Friday, followed by the release of the January CPI next Tuesday. He notes that last year, the revisions indicated that inflation had fallen less aggressively in the second half of 2022, which influenced rate cut expectations at the time.
