U.S. government-debt yields remained higher Wednesday morning as reduced expectations for a Federal Reserve rate cut in March overshadowed data on manufacturing and job openings.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
advanced 1.3 basis points to 4.341%, from 4.328% on Tuesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 3.5 basis points to 3.979%, from 3.944% Tuesday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
also climbed by 3.5 basis points to 4.119%, from 4.084% late Tuesday.
What’s driving markets
On Wednesday, Richmond Fed President Tom Barkin said that the timing and pace of any changes in interest rates this year will be determined by conviction on whether inflation is still coming down and how well the economy is doing. His remarks came ahead of the planned 2 p.m. Eastern time release of the minutes from the central bank’s Dec. 12-13 policy meeting.
The market has started 2024 by questioning expectations that the Federal Reserve will begin cutting interest rates in March. The shift reflects concerns that investors may have misjudged the Fed’s desire to quickly trim rates in response to falling inflation.
Fed-funds futures traders now see a 91.2% chance of the Fed leaving its benchmark rate between 5.25% and 5.5% on Jan. 31, according to the CME FedWatch Tool. In addition, the chance of at least a 25-basis-point rate cut by March is now at 72.6%, down from 90.3% a week ago.
However, traders still see an 88.8% chance of five to seven quarter-point rate cuts by December.
Meanwhile, U.S. data released on Wednesday showed that job openings dipped to 8.8 million in November from a revised 8.9 million in the prior month, and the number of people quitting fell to a 33-month low of 3.47 million. Manufacturing-sector activity contracted in December for a 14th consecutive month, based on ISM’s industry-related PMI reading.
What strategists are saying
While Fed Chair Jerome Powell clearly alluded to the possibility of easing at his post-meeting press conference last month, Oscar Munoz, chief U.S. macro strategist at TD Securities, said that Fed officials “have pushed back on the idea of that happening imminently” since the December Federal Open Market Committee meeting.
“In that vein, we expect this week’s minutes to show that the FOMC is not entertaining the case for rate cuts just yet,” he wrote in a note on Tuesday.
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