- The yield on the 2-year Treasury, BX:TMBMKSE-02Y, rose by 2.5 basis points to 5.062%. It’s important to note that yields move in the opposite direction to prices.
- The yield on the 10-year Treasury, BX:TMUBMUSD10Y, saw a slight increase of nearly 1 basis point to 4.341%.
- Similarly, the yield on the 30-year Treasury, BX:TMUBMUSD30Y, climbed by 1 basis point to reach 4.430%.
Factors Influencing Markets
Recent U.S. economic data has shown strength, surpassing expectations. This includes persistent inflation levels and robust retail sales. Additionally, rising oil prices have contributed to pushing 10-year Treasury yields closer to their highest levels since the great financial crisis.
Federal Reserve Meeting
Traders are eager to assess how these developments are impacting the Federal Reserve’s thought process. The central bank concludes its policy meeting on Wednesday, followed by a press conference held by Chair Jay Powell. This will provide insight into the Fed’s stance towards interest rates and their response to the current economic conditions.
According to the CME FedWatch tool, markets have priced in a 99% probability that the Fed will maintain interest rates at a range of 5.25% to 5.50% during the September 20 meeting. However, expectations for a 25 basis point rate hike to a range of 5.50% to 5.75% during the subsequent November meeting are currently priced at just 31%.
The Central Bank’s Rate Projection
According to 30-day Fed Funds futures, it is expected that the central bank will not lower its Fed funds rate target back down to around 5% until September 2024. This forecast has shifted from the previous expectation that the target rate would be reached by June.
U.S. Economic Updates
On Monday, there will be updates on the U.S. economy, including the release of the September home builder confidence index at 10 a.m. Eastern time.
U.K. Government Bond Yields and Policy Decision
The U.K. 10-year government bond yields (BX:TMBMKGB-10Y) rose by 2.3 basis points to 4.384%. These yields are in anticipation of consumer prices data set to be released on Wednesday and the Bank of England’s policy decision on Thursday. Many analysts expect the BoE to raise interest rates by 25 basis points to 5.5%.
Bank of Japan’s Stance
Although it is predicted that the Bank of Japan will hold its current policy stance on Friday, traders will be paying close attention to any indication of a timescale for exiting its negative rate position.
According to James Harte, an analyst at TickMill Group, although it is widely anticipated that the Fed will not change interest rates, traders are eager to see how the bank presents its forward guidance and updates its dot plot forecasts.
Harte also highlights that recent data has shown stronger-than-expected readings for August’s non-farm payroll (NFP), consumer price index (CPI), and retail sales. These positive indicators suggest that there may be a need for additional rate hikes by the Fed this year despite weaker U.S. data previously influencing the argument for an end to tightening.