U.S. bond yields fell early Tuesday as traders eyed a batch of economic data and comments by Federal Reserve officials in coming days.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slid by 2.2 basis points to 4.691%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
fell 1.6 basis points to 4.267%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
dipped 1 basis point to 4.387%.
What’s driving markets
Benchmark Treasury yields inched down from near the top of their three-month range as investors awaited data that may determine the trajectory of Federal Reserve monetary policy.
Of particular interest is the personal consumption expenditure price index, due for release on Thursday. The PCE is the Fed’s favored inflation gauge and its reading may determine whether a rate cut is possible as soon as May.
Before that, U.S. economic updates set for release on Tuesday include durable goods orders for January at 8:30 a.m. Eastern, the S&P Case-Shiller home price index for December at 9 a.m., and February consumer confidence at 10 a.m.
The Fed Vice Chair for Supervision Michael Barr is due to speak at 9:05 a.m. And a swathe of his colleagues will make comments on Wednesday, Thursday and Friday.
For now, markets are pricing in a 97.5% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on March 20th, according to the CME FedWatch tool.
The chances of at least a 25 basis point rate cut by the subsequent meeting in May is priced at 17.3%, down from 86% just a month ago after stronger than expected jobs and inflation data, and following hawkish comments from Fed officials.
The Treasury will auction $42 billion of 7-year notes at 1 p.m.
What are analysts saying
The economics team at Deutsche Bank led by Amy Yang noted that recent Fed speakers have highlighted the risks of financial conditions becoming less restrictive than needed to damp inflation further.
“[O]ur latest analysis showed that the easing of financial conditions since the fall has also increased the probability that year-ahead inflation remains above 2.5% from 30% to 40%,” said Yang and colleagues.
“In a nutshell, the messaging from the Fed points towards a lower likelihood of cuts before June. As such, our view of 100bps of cuts in 2024 beginning at the June meeting remains our baseline. That outcome will, however, require a re-emergence of evidence that inflation is on the right track,” the Deutsche team added.
