Treasury yields hold steady ahead of Wednesday’s Fed interest-rate policy update

U.S. government-debt yields finished mixed on Tuesday as traders assessed improving consumer-confidence figures and looked ahead to Wednesday’s interest-rate policy announcement by the Federal Reserve.

What happened

  • The yield on the 2-year Treasury
    BX:TMUBMUSD02Y
    rose 3.7 basis points to 4.357%, from 4.320% on Monday. The rate is up two of the past three trading sessions. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    BX:TMUBMUSD10Y
    fell 3.3 basis points to 4.056%, from 4.089% on Monday.

  • The yield on the 30-year Treasury
    BX:TMUBMUSD30Y
    declined 5.6 basis points to 4.277%, from 4.333% on Monday.

  • Tuesday’s levels for the 10- and 30-year rates are the lowest since Jan. 12, based on 3 p.m. Eastern time figures from Dow Jones Market Data.

What drove markets

In U.S. economic data released on Tuesday, consumer confidence rose in January to 114.8, its highest level since December 2021. The improved sentiment seemed to reflect a combination of easing inflation, expectations for lower interest rates and favorable employment conditions.

Separately, job openings were little changed at 9 million in December, while the S&P CoreLogic Case-Shiller 20-city home-price index rose 0.1% in November.

Fed policymakers started their two-day monetary-policy meeting on Tuesday, and are widely expected to leave their benchmark interest-rate policy target between 5.25%-5.5% this week.

Investors will be focused on the Fed’s policy statement on Wednesday, and comments from Chair Jerome Powell at his press conference, for guidance on the chances of a rate cut in coming months. The probability of a 25-basis-point rate cut by March is seen at 40.9%, down from 73.4% a month ago.

See also: Why analysts say the Fed risks clogging the financial plumbing without a policy change

What analysts are saying

“We continue to expect the first rate cut in March, though we expect no strong signal in January,” said BofA Global Research economist Michael Gapen, along with strategists Mark Cabana and Alex Cohen. “The Fed needs to buy time to see more data. We think the policy-rate guidance needs to change again, as we believe the current upside-hiking bias in the statement remains untenable. The language is likely to become more neutral, but the direction of travel of recent changes would signal some easing bias.”

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