On Tuesday, bond yields showed a slight mixed trend in early trading, reflecting cautious sentiment among investors as they awaited crucial inflation data scheduled for release later in the week.
Key Takeaways:
Yield on 2-year Treasury: Up 1.8 basis points to 4.603%.- Yield on 10-year Treasury: Fell less than 1 basis point to 4.244%.
- Yield on 30-year Treasury: Eased by less than 1 basis point to 4.412%.
What’s driving markets
Moves in Treasury yields were modest as investors awaited the release of the personal consumption expenditure (PCE) price data for February, a key inflation metric favored by the Federal Reserve.
With many markets closed for the Easter break on the day of the PCE report’s release, traders exercised caution, hesitant to make significant moves that could leave them exposed to potential market shifts.
Stephen Innes, managing partner at SPI Asset Management, noted that some investors may be taking a break during the spring holiday, while others are adopting a wait-and-see approach for bullish catalysts, particularly favorable outcomes from the Fed’s preferred inflation gauge.
The PCE report could influence market sentiment regarding the timing of potential interest rate adjustments by the Federal Reserve.
In the current market context, meeting or exceeding consensus expectations in the inflation data could be interpreted as an “all-clear” signal, potentially affecting the Fed’s decisions on interest rates.
According to the CME FedWatch tool, markets are pricing in a high probability (92%) that the Fed will maintain interest rates at their current range of 5.25% to 5.50% after the upcoming meeting on May 1st.
Looking ahead, there is a 69.8% likelihood of at least a 25 basis point rate cut by the June meeting, with expectations that the central bank may reduce its Fed funds rate target to around 4.54% by December 2024, as indicated by 30-day Fed Funds futures.
In addition to the PCE report, investors are also eyeing several U.S. economic data releases scheduled for Tuesday, including durable goods orders for February, the January S&P Case-Shiller home price index, and March consumer confidence.
Furthermore, the Treasury is set to auction $67 billion of 5-year notes later in the day, adding to the market activity and sentiment.