Bond yields were little changed on Friday as traders kept their powder dry ahead of next week’s inflation data and Fed decision
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.559%
up by 2.2 basis points to 4.560%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.753%
is gaining 2 basis points to 3.740%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.911%
added 1.9 basis points to 3.908%.
What’s driving markets
With no notable economic releases due Friday, bond market moves are minimal as attention is focused on next Tuesday’s inflation data and Wednesday’s Federal Reserve monetary policy decision.
Markets are pricing in a 75% probability that the Fed will leave interest rates unchanged at a range of 5.0% to 5.25% after its meeting on June 14, according to the CME FedWatch tool.
The chances of a 25 basis point hike to 5.25% to 5.50% in July is priced at 52%.
Markets appear more relaxed about the prospects for Fed policy and its impact on bond markets.
The ICE Bank of America MOVE index, which measures expected volatility in Treasuries, is hovering around 115, near its lowest level since February and way down from the 200 mark hit in March at the height of the regional bank turmoil.
What are analysts saying
Not everyone thinks the Fed will hit the pause button next week.
“Next week’s decision is likely to come down to the wire, but we maintain our long-held view that the Fed will tighten rates by a final 25 basis points in June to a range of 5.25%-5.50%. If the Fed decides to ‘skip’ the June meeting, we expect the decision to be accompanied by communication that leans hawkish, signaling a likely hike for July,” said strategists at TD Securities led by Oscar Munoz.
“The rates market reaction will hinge on whether the Fed hikes rates or promises a hike in the future as we head into the most uncertain FOMC meeting of the current cycle. Treasuries are likely to bear flatten sharply in the event of a rate hike as the market pencils in the potential for more hikes in July. However, if the Fed passes on a hike, we expect the curve to bull steepen sharply even if the Fed continues to insist that they are not finished tightening yet,” TD Securities added.
Read the full article here
