Overview
- The yield on the 2-year Treasury BX:TMUBMUSD02Y held steady at 4.675%.
- The yield on the 10-year Treasury BX:TMUBMUSD10Y decreased by 1.1 basis points to 4.310%.
- The yield on the 30-year Treasury BX:TMUBMUSD30Y saw a slight decline of 1.3 basis points to 4.468%.
Market Trends
The 10-year Treasury yield maintained levels above 4.3%, remaining close to its 12-week peak following the recent release of minutes from the Federal Reserve’s latest policy meeting. The central bank’s cautious stance on interest rate cuts contributed to the ongoing stability in yields.
A less-than-favorable 20-year Treasury auction exerted upward pressure on yields earlier in the week. The Treasury is scheduled to conduct a $9 billion auction of 30-year TIPS later on Thursday.
Multiple Federal Reserve officials are scheduled to address the public, with Fed Vice Chair Philip Jefferson, Philadelphia Fed President Patrick Harker, Fed Gov. Lisa Cook, and Minneapolis Fed President Neel Kashkari all slated to speak on Thursday. These speeches are expected to offer insights into the Fed’s monetary policy outlook.
Key economic data releases for Thursday include weekly initial jobless benefit claims at 8:30 a.m. Eastern, S&P flash services and manufacturing PMIs for February at 9:45 a.m., and January existing home sales at 10 a.m.
Market Expectations and Analyst Insights
Market Predictions Market participants are currently pricing in a 95.5% probability that the Federal Reserve will maintain interest rates at a range of 5.25% to 5.50% during its upcoming meeting on March 20th. This sentiment is based on data provided by the CME FedWatch tool.
The likelihood of a 25 basis point rate cut at the subsequent meeting in May has significantly decreased to 27.4%, a considerable drop from the 84% probability observed just one month ago.
Future Rate Trends Forecasts suggest that the central bank is anticipated to decrease its Fed funds rate target to approximately 4.555% by the end of December 2024, as indicated by 30-day Fed Funds futures.
Insights from Analysts “Since the Fed’s pivot on December 13, consumer sentiment regarding the economic outlook has notably improved,” noted Torsten Slok, the chief economist at Apollo. He highlighted key trends such as the surge in investment-grade issuance, substantial high-yield issuance, and increased activity in initial public offerings and mergers and acquisitions since December.
Slok expressed his view that the recent bounce-back in employment and inflation indicators, along with consistently low jobless claims, can be attributed to this shift in market dynamics. He emphasized that despite these positive developments, the road ahead may present challenges due to the Federal Reserve’s premature dovish stance, leading to a resurgence in economic growth and inflation.
In conclusion, Slok opined that the Federal Reserve is likely to maintain interest rates at elevated levels for an extended period compared to market expectations, reflecting the potential consequences of its quick shift towards accommodative monetary policy.