Yields for U.S. government debt were climbing across the board Tuesday morning as investors awaited the start of the Federal Reserve’s two-day policy meeting, which concludes on Wednesday.
What are yields doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.762%
yields 1.775%, up from 1.735% at 3 p.m. Eastern Time on Monday, when the yield rose to its highest rate since Jan. 13. -
The 2-year Treasury note rate
TMUBMUSD02Y,
1.008%
was at 1.013%, up from 0.950% a day ago. The yield also rose its highest level since mid January. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
2.104%
was at 2.116%, compared with 2.083% on Monday.
What’s driving the market?
The Fed’s rate-setting meeting kicks off Tuesday and comes after equities have experienced highly volatile trading over the past week as bond yields mostly push higher and anticipation grows for more hawkish monetary policy.
The central bank’s policy-setting Federal Open Market Committee is expected this week to lay the groundwork for a benchmark interest rate increase at its March meeting and to further discuss how fast it will shrink its balance sheet once it is ready to do so.
The Fed minutes of its December meeting, released early this month, surprised the market with how detailed the discussion was about shrinking the Fed’s nearly $9 trillion balance sheet.
Policy makers will likely keep in mind a bout of market volatility, which resulted in a surge in yields and turbulence in stocks, that followed a spring 2013 signal that the central bank was preparing to wind down the asset-buying program put in place during the 2008 financial crisis.
Market-based projections show that investors are anticipating that the Fed will raise rates, which stand at a range between 0% and 0.25%, three or four times in 2022.
Fed-funds futures show traders also see a roughly 5% chance of a 50 basis point, or 0.5 percentage point, hike, rather than a 25 basis point move, by the Fed at the March meeting, according to the CME FedWatch tool.
In U.S. economic reports due Tuesday, investors are watching for a reading on home prices at 9 a.m. ET, the Case-Shiller Home Price Index, and a report on consumer confidence due at 10 a.m.
Later in the session, an auction of $55 billion in 5-year Treasury notes
TMUBMUSD05Y,
at 1 p.m. also will be watched for its influence on yields.
What strategists are saying
“If you thought yesterday’s closing stock rally was too strong to hold, you were correct. Although valuations are off drastic lows, equity index trends remains weak. For interest rates, technicals are clearer, wrote Jim Vogel, executive vice president at FHN Financial, in a Tuesday note.
“The biggest volume in 10-yr UST futures Monday was the selling in the final two hours of domestic trade when it appeared possible the NASDAQ could sustain a bounce off the low. In those two hours, 10-yr yields rose 5.5bp. The selling stopped just before crossing the line into the 1.78-1.82% yield gap,” wrote Vogel. “Buying during the earlier rally was steady but never gained momentum, increasing the strength of resistance just below 1.73%. If 10-yr yields do break through resistance, then, the odds of falling to 1.65% are now higher,” he wrote.
