Treasury yields rose Tuesday morning after central bank officials in the U.S. and Europe attempted to push back on the market’s expectations on the timing and pace of interest-rate cuts in 2024.
What’s happening
- The yield on the 2-year Treasury BX:TMUBMUSD02Y advanced 9.4 basis points to 4.232% from 4.138% on Friday.
- The yield on the 10-year Treasury BX:TMUBMUSD10Y rose 8.9 basis points to 4.038% from 3.949% on Friday.
- The yield on the 30-year Treasury BX:TMUBMUSD30Y climbed 8.9 basis points to 4.286% from 4.197% on Friday.
- U.S. financial markets were closed on Monday for the Martin Luther King Jr. Day holiday.
What’s driving markets
Treasury yields were rising on Tuesday as traders focused on remarks out of Europe and the U.S. from central bankers.
European Central Bank governing council member Robert Holzmann said in an interview on Monday at Davos that lingering inflation may stop the ECB from cutting interest rates this year. And on Tuesday, French central bank chief François Villeroy de Galhau, another ECB member, said “we should be patient” about cutting rates.
Back in the U.S., Federal Reserve Gov. Christopher Waller confirmed that rate cuts are still ahead, but that there is no need to be “rushed” about it.
Traders are pricing in a 95.3% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on Jan. 31, according to the CME FedWatch Tool. The chance of at least a 25-basis-point rate cut by March is seen at 73.3%, and the central bank is mostly expected to take its fed-funds rate target down to between 3.75%-4% by December or lower.
In U.S. data released on Tuesday, the New York Fed’s Empire State manufacturing-activity gauge plunged 29.2 points in January to negative 43.7, or the lowest level since the depth of the pandemic in May 2020.