Bond yields fell slightly on Thursday, though benchmark Treasuries held near their highs for the year.
- The yield on the 2-year Treasury TMUBMUSD02Y,
4.593%slipped by 3.8 basis points to 4.581%. Yields move in the opposite direction to prices.
- The yield on the 10-year Treasury TMUBMUSD10Y,
3.782%retreated 2.1 basis points to 3.786%.
- The yield on the 30-year Treasury TMUBMUSD30Y,
3.849%fell less than 1 basis point to 3.838%.
What’s driving markets
Ten-year Treasury yields were a touch softer but sat just below their highest levels in 2023.
Yields have moved up in recent weeks after robust data of late — including Wednesday’s news of strong retail sales — have raised hopes that the Federal Reserve’s rate hikes designed to cool inflation are not going to deliver a hard economic landing.
Markets are pricing in a 91% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5.0% after its meeting on March 22nd, according to the CME FedWatch tool.
The central bank is expected to take its Fed funds rate target to 5.22% by August 2023, according to 30-day Fed Funds futures. Just a few weeks ago rates were expected to peak at 4.9% in June.
U.S. economic updates set for release on Thursday include weekly initial jobless claims, the January producer price index, building permits and housing starts, and the February Philadelphia Fed manufacturing survey, all due at 8:30 a.m. Eastern.
What are analysts saying
” [Following] strong retail sales numbers, coupled with [Tuesday’s] hotter than expected consumer price index (CPI) print, the Fed Funds Futures market is now looking at a stronger possibility of more rate hikes this year– and decreasing the possibility of a rate cut,” said Quincy Krosby, chief global strategist for LPL Financial.
“The market is pricing in yet another 25 basis point hike later this year, with probability for rate hike announcements for the March and June meetings edging higher.”
“Hawkish members of the Federal Reserve are on tap to speak Thursday, and markets have been particularly sensitive to comments from the hawkish side of the Fed board with regard to expectations for the terminal rate. Loretta Mester and James Bullard are certain to discuss the strength of the economy and inflation concerns when they speak,” Krosby added.