US government debt yields rose on Wednesday morning, as traders continued to curb bets on a rapid reduction in borrowing costs by the Federal Reserve in March.
What is happening
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The yield on the two-year Treasury note BX:TMUBMUSD02Y rose 3 basis points to 4.358% from 4.328% on Tuesday.
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The yield on the 10-year Treasury note BX:TMUBMUSD10Y rose 5 basis points to 3.994% from 3.944% on Tuesday afternoon.
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The yield on the 30-year Treasury note (BX:TMUBMUSD30Y) also rose 5 basis points to 4.134% from 4.084% late Tuesday.
What drives the markets?
The timing and pace of any interest rate changes this year will be determined by whether inflation is still falling and how well the economy is doing, Richmond Fed President Tom Barkin said on Wednesday. His comments came ahead of the release of the minutes of the central bank's monetary policy meeting at 2pm ET on December 12-13.
The market began 2024 by questioning expectations that the Federal Reserve would begin cutting interest rates in March. The shift reflects concerns that investors may have misjudged the Fed's willingness to cut interest rates quickly in response to falling inflation.
Fed funds futures traders now see an 89.1% chance the Fed will leave its benchmark interest rate between 5.25% to 5.50% on January 31, according to the CME FedWatch tool. In addition, the chance of a rate cut of at least 25 basis points by March is 73.3%, down from 90.3% a week ago.
However, traders see an 88.9% chance of interest rates being cut by five to seven percentage points by December.
U.S. economic updates scheduled for release on Wednesday include the November Job Opportunities Survey, or JOLTS, along with the December ISM manufacturing report, both scheduled for release at 10 a.m. ET.
What strategists say
While Powell clearly hinted at the possibility of easing in his post-meeting press conference last month, “Fed officials since the FOMC meeting in December have dismissed the idea that this is imminent,” said Oscar Munoz, chief economic strategist. US aggregate at TD Securities. .
“In this context, we expect this week's meeting minutes to show that the FOMC is not considering the issue of rate cuts yet,” he wrote in a note on Tuesday.
