U.S. yields finished mostly higher on Tuesday, with 2- and 10-year Treasury rates advancing for a fourth consecutive session, as traders awaited the March consumer-price index report on Wednesday.
What happened
- The yield on the 2-year Treasury TMUBMUSD02Y,
4.028% rose 5.2 basis points to 4.056% from 4.004% on Monday. The yield is up almost 30 basis points over the last four trading days, according to 3 p.m. figures from Dow Jones Market Data. - The yield on the 10-year Treasury TMUBMUSD10Y,
3.425% advanced 1.9 basis points to 3.433% from 3.414% Monday afternoon. The yield is up 14.8 basis points during the past four sessions — matching the streak of advances last seen in the period that ended on Dec. 21. - The yield on the 30-year Treasury TMUBMUSD30Y,
3.623% declined less than 1 basis point to 3.621% from 3.626% on Monday. The 30-year yield is down eight of the past 10 trading sessions.
What drove markets
U.S. bond yields were initially softer on Tuesday after data from China showed consumer inflation falling.
Rates turned higher as the New York trading session wore on, though, with traders awaiting the March U.S. consumer price data due on Wednesday. The report is likely to affect the Federal Reserve’s thinking ahead of its next monetary policy decision in just three weeks. Wednesday also brings the release of the minutes of the Fed’s March rate setting meeting.
Markets are pricing in a 72.4% probability that the Fed will raise interest rates by another 25 basis points to between 5% and 5.25% on May 3, according to the CME FedWatch tool. The central bank is then mostly expected to take its fed-funds rate target back down to between 4.5% and 4.75% by November.
In an appearance on Tuesday, Chicago Fed President Austan Goolsbee said that the central bank needs “to be cautious” about further increases in interest rates after the failure of California’s Silicon Valley Bank and the resulting stress on the U.S. financial system.
What analysts are saying
“We expect central banks, excluding the BOJ [Bank of Japan], to moderately raise rates in the second quarter until financial accidents accelerate, pause in the third quarter while noting that second-round inflation effects remain substantial, but then start cutting in the fourth quarter and first quarter” as economic growth and commodity prices falter, said John Vail, chief global strategist at Nikko Asset Management.
