U.S. Treasury yields are holding flat on Wednesday as investors waited for inflation data at the end of the week.
What’s happening
- The yield on the 2-year Treasury TMUBMUSD02Y, 4.063% was virtually unchanged at 4.06%.
- The yield on the 10-year Treasury TMUBMUSD10Y, 3.561% was flat at 3.56%.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.778% was unchanged at 3.78%.
What’s driving markets
U.S. Treasury yields were mostly unchanged at midday Wednesday from a day ago as traders waited for inflation data on Friday to help gauge the path of Federal Reserve policy on interest rates.
February’s PCE inflation report, one of the price gauges most closely watched by the Fed, is due on Friday.
Markets were pricing in a roughly 58% probability that the Fed will leave its policy rates unchanged at a range of 4.75% to 5.0%, and keep them there, after its meeting on May 3rd, according to the CME FedWatch tool.
In economic data, the focus was on more upbeat data for the housing market. Contract signings on U.S. homes rose for the third month in a row, with pending-home sales climbing 0.8% in February, according to the monthly index from the National Association of Realtors. Demand for mortgages also rose 2.9% in the latest week, as rates dropped for the third consecutive week.
What are analysts saying
“The economic impact of recent banking stress is highly uncertain and rate markets removed about six hikes from the expected fed-funds rate priced into the December 2023 FOMC meeting,” wrote BofA Global’s rates and currency research team on Wednesday.
Their forecast, given a “shallow easing trajectory” by the Fed is a 2-year Treasury rate around 4.75%. Their 10-year rate forecast is 3.25% at the end of 2023, with downside risk to their forecasts if the credit cycle turns.
“The withdrawal of yields from their highs is likely to continue as the Fed nears the end of the tightening cycle,” wrote Peter Cardillo, chief market economist at Spartan Capital, in a daily client note on Wednesday. “In fact, with recession on the horizon, yields are likely to move lower. We therefore restate a 3.25% yield factor for ten year TSY bond’s in the intermediate short-term.”
