The yields on U.S. Treasury notes have been gradually increasing, as investors prepare for a significant week of economic events and two government paper auctions.
- The yield on the 2-year Treasury rose by 1 basis point to 4.74%. This follows a significant jump of 14.7 basis points on Friday, marking the largest one-day increase since June. Remember, yields move in the opposite direction to prices.
- The yield on the 10-year Treasury advanced by 2 basis points to 4.25% after climbing 11.5 basis points on Friday to 4.244%.
- The yield on the 30-year Treasury rose by 2 basis points to 4.33% following an increase of 8.1 basis points on Friday to 4.325%.
Factors Impacting the Market:
The bond market experienced a sell-off on Friday due to robust jobs data, which pushed back expectations for a Federal Reserve interest rate cut in the coming year. As a result, Fed-funds futures traders now estimate a 42% chance of at least a 25-basis-point cut by March. This is a notable decrease from the 64.5% probability seen on Thursday, according to the CME FedWatch tool.
The Fed to Hold Interest Rates Steady
The Federal Reserve is anticipated to maintain interest rates at their current level in its policy decision announcement on Wednesday. However, investors will carefully scrutinize comments from Chair Jerome Powell for any potential clues regarding future monetary policy.
November CPI Report: A Key Indicator
Prior to the Fed’s meeting, the market will receive the November Consumer Price Index (CPI) report on Tuesday. Last month’s CPI report played a significant role in boosting the stock and bond markets. Stephen Innes, managing partner at SPI Asset Management, acknowledged the positive impact of the October CPI report on market sentiment.
While the November CPI report is expected to exhibit softer headline prices, economists predict a stronger core reading that excludes food and energy prices. This data release will be crucial in determining whether the trend observed last month will persist.
Additional Economic Data Awaited
In addition to the CPI report, this week will also see the release of other important economic indicators. On Wednesday, producer prices will be published, providing insights into inflationary pressures at the manufacturing level. Retail sales data will follow on Thursday, shedding light on consumer spending trends – a key driver of economic growth.
Treasury Market Auctions
The Treasury market will face two auctions this week. The first auction, to be held on Monday, involves $37 billion worth of 10-year debt. On Tuesday, the market will witness a $21 billion sale of 30-year securities. These auctions provide an opportunity for investors to purchase government bonds at predetermined yields.
As market participants navigate through a busy week of economic releases and auctions, their attention will primarily be focused on the Fed’s interest rate decision and any updates from Chair Jerome Powell.