Bond yields inched lower on Wednesday as traders awaited minutes from the Federal Reserve’s previous rate-setting meeting.
What’s happening
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The yield on the 2-year Treasury
TMUBMUSD02Y,
4.678%
was less than 1 basis point lower at 4.691%. Yields move in the opposite direction to prices.
-
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.935%
retreated 1 basis point to 3.946%.
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The yield on the 30-year Treasury
TMUBMUSD30Y,
3.952%
fell less than 1 basis point to 3.970%.
What’s driving markets
Bond yields are inching back from recent highs as investors wait to see the minutes of the Federal Reserve’s rate setting meeting that concluded at the start of the month. The minutes will be published at 2 p.m. Eastern.
Yields have surged over the past few weeks — with monetary policy-sensitive 2-year yields flirting with their highest level since 2007 — in response to stronger-than-expected economic data that may cause the Fed to keep borrowing costs higher for longer.
Markets are pricing in a 76% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5.0% after its meeting on March 22nd, according to the CME FedWatch tool.
The chances of a 50 basis-point hike to a range of 5% to 5.25% is now 24%, double the level of just a week ago.
The central bank is expected to take its Fed funds rate target to 5.36% by June 2023, according to 30-day Fed Funds futures. Just a few weeks ago the “terminal rate” was seen at 4.9%.
What are analysts saying
“The minutes of the February 1st Fed meeting will be out later today and will be key for the cues on inflation expectations and terminal rate forecasts as a gauge for what to expect in the dot plot in March,” said strategists at Saxo Bank.
“Still, the hotter-than-expected inflation print for January (both CPI and PPI) were released after the FOMC meeting and that has shifted the narrative to a hawkish. The criteria for a pause may be on the lookout, and whether that is any push to driving the market’s rate cut expectations further out,” Saxo added.
