A previous version of this story gave the incorrect day. This information is for Thursday.
Bond yields held steady Thursday morning as traders continued to absorb minutes from the Federal Reserve’s latest rate-setting meeting.
What’s happening
- The yield on the 2-year Treasury note TMUBMUSD02Y,
4.699% was 4.691%, little changed from 4.697% on Wednesday. Yields move in the opposite direction to prices. - The yield on the 10-year Treasury note TMUBMUSD10Y,
3.909% slipped to 3.908% from 3.922% as of Wednesday afternoon. - The yield on the 30-year Treasury bond TMUBMUSD30Y,
3.890% slipped to 3.887% from 3.927% as of late Wednesday.
What’s driving markets
Treasury yields were steady after minutes of the Fed’s Jan. 31-Feb. 1 rate-setting meeting gave little indication the central bank would veer from its tighter-policy trajectory.
Markets are pricing in a 73% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5% on March 22, according to the CME FedWatch tool. Meanwhile, the chance of a 50 basis point hike is 27%, up from 1.3% a month ago.
The central bank is still mostly expected to take its fed-funds rate target to at least between 5.25% and 5.5% by June, according to 30-day Fed Funds futures. About a month ago, the “terminal rate” was seen at around 4.9%.
Read: The bond market’s worst-case scenario isn’t a Fed rate of 6%. It’s this.
What analysts are saying
“The typical end-cycle environment is coming into place — mixed economic signals with a downward bias combining with Fed policy focused on corralling inflation by reducing labor demand. Recession will result. Forget the Fed stopping to wait and watch and hope that inflation bends towards 2% without a recession. That horse has left the barn,” said Steven Blitz, an analyst at TS Lombard, in a note.
“It was good to read [in the Fed minutes] that they saw the funds rate only ‘moving toward a sufficiently restrictive stance of monetary policy.’ As I have long argued, rates have just gotten to the starting gate. The economic slowdown to date has had little to do with Fed policy (though they took their bows), but with the economy naturally slowing from its unsustainable 6% pace in 2021– created by fiscal transfer, reopening, and Fed underwriting. That was then, the Fed owns what happens next,” Blitz wrote.
