Fed Minutes Anticipation: Treasury Yields Maintain Stability

There was little change in bond yields on Wednesday morning as traders waited for the Federal Reserve’s January meeting minutes to be released.

What’s happening

• The 2-year Treasury yield dropped by 2.9 basis points to 4.589%, as yields usually move in the opposite direction of prices.
• The interest rate on the 10-year Treasury bond decreased slightly to 4.274%, falling by less than 1 basis point.
• The yield of the 30-year Treasury bond, symbolized by BX:TMUBMUSD30Y, stayed constant at 4.543%.

What’s driving markets

Investors were hesitant to make risky investments until the minutes from the Federal Reserve’s policy meeting on January 31st at 2 p.m. Eastern time were released.

In recent weeks, the 10-year Treasury yields have been gradually increasing and are now approaching the upper end of the range between 3.8% and 4.3%. This is a result of unexpected inflation and employment data, causing Federal Reserve officials to hint at a possible lack of rate cuts in March.

Analysts expect that the upcoming minutes will reflect the same stance.

On Wednesday, a number of Federal Reserve officials are scheduled to speak. The day will start with Atlanta Fed President Raphael Bostic’s opening remarks at 8 a.m. Eastern time, followed by an interview with Richmond Fed President Tom Barkin on SiriusXM radio at 9:10 a.m., and comments from Fed Gov. Michelle Bowman at 1 p.m.

Based on the CME FedWatch tool, there is a high probability of 93.5% that the Federal Reserve will maintain interest rates at 5.25% to 5.50% following the upcoming meeting on March 20th.

The likelihood of a rate cut of 25 basis points at the May meeting has decreased to 37.2% from 84.7% a month ago. The Federal Reserve is expected to reduce its Fed funds rate target to approximately 4.5% by December 2024, according to 30-day Fed Funds futures.

At 1 p.m., the Treasury plans to auction off $16 billion of 20-year notes.

What are analysts saying

The Citi economics team, headed by Andrew Hollenhorst, expects that the Federal Reserve will make its first 0.25% interest rate cut in June, as predicted by the market.

They stated that the current situation of robust job growth and elevated inflation rates presents difficulties in justifying a decrease in interest rates, and this stance will be reflected in the meeting minutes. However, a potential drop in year-over-year core PCE data could potentially convince Federal Reserve officials to cut rates, despite the ongoing economic conditions.