Treasury yields edge lower as traders await crucial week of data, Fed decision
Treasury yields declined on Monday in rangebound trade, as investors await a crucial week that includes details of the U.S. government’s first-quarter borrowing needs, a Federal Reserve policy decision and a December jobs report.
Investors also are keeping a close eye on the situation in the Middle East, after the U.S. vowed to retaliate for a weekend drone attack that killed three U.S. troops in Jordan, marking a significant escalation in tensions.
See: Biden vows retaliation after 3 Americans killed, dozens wounded in drone attack by Iran-backed militia in Jordan
Yield moves
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The yield on the 2-year Treasury note
BX:TMUBMUSD02Y
was off 2 basis point, to 4.328% after ending last week at 4.365%, according to FactSet data. Yields and debt prices move opposite each other. -
The 10-year Treasury note
BX:TMUBMUSD10Y
was falling 4 basis points, to 4.104%, down from 4.159% at 3 p.m. ET on Friday. -
The yield on the 30-year Treasury bond
BX:TMUBMUSD30Y
was declining 3 basis points, to 4.354% versus 4.388% late Friday.
Market drivers
On Monday afternoon, the U.S. Treasury Department is set to reveal its revised forecast for first-quarter borrowing needs and a preliminary estimate of its second-quarter needs. That announcement will be followed Wednesday with an auction schedule and other details.
“We expect the upcoming round of increases in auction sizes to be the last for a while,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics, in a Monday note. “The Fed is expected to begin tapering its quantitative tightening in the second quarter, which will reduce the amount of debt the Treasury needs to sell to private investors.”
The Treasury Department said in October it expected to borrow $776 billion in the fourth quarter of 2023, or $76 billion less than it was expecting in July. The decrease in borrowing needs was largely driven by higher receipts, the department said.
See: Wall Street is counting on Treasury’s borrowing needs to trend lower between now and June
Meanwhile, the Fed will conclude a two-day policy meeting on Wednesday afternoon. The central bank is seen as virtually certain to leave the fed-funds rate unchanged at 5.25% to 5.5%, but investors will key in on the policy statement and, in particular, remarks by Fed Chair Jerome Powell for clues to the timing of expected rate cuts.
Fed-funds futures traders have priced in a slightly better than 50% chance of a quarter-point cut by the Fed’s March 20 meeting and have priced in a better than 50% chance the fed-funds rate will fall to at least 3.75%-4% by December, according to the CME FedWatch tool.
Read: Fed decision: Powell will keep door open for first interest rate cut in March
“Powell probably won’t alter current market sentiment. The economy is holding up very well but inflation is evolving favorably as well,” analysts at KBC Bank in Brussels said in a client note.
“The Fed Chair against that background probably isn’t in the mood for being outright hawkish. We think that anything bar the latter will prolong the dovish tide in markets,” they wrote.
The December jobs report is also due on Friday, which will be watched for signs of cooling in the labor market.
Traders also will keep an eye on oil prices. U.S.
CL00,
and global
BRN00,
crude benchmarks rallied last week to their highest since November, boosted by concerns over tensions in the Middle East, as well as U.S. production outages due to cold weather.
Before turning lower in trade Monday, oil futures spiked higher in Asian trading hours as investors reacted to the drone attack and U.S. military fatalities, but then pulled back.
