Bond Report: Two-year Treasury yield consolidates above 4% as banking stress subsides
Bond yields rose on Tuesday as the continued easing of banking sector stress reduced buying of supposed haven assets.
The yield on the 2-year Treasury
added 7.6 basis points to 4.031%. Yields move in the opposite direction to prices.
The yield on the 10-year Treasury
rose 2.8 basis points to 3.565%.
The yield on the 30-year Treasury
climbed 1 basis point to 3.771%.
What’s driving markets
Bond yields continued to move higher as another day of calmer conditions in the financial sector crimped demand for government paper as traders bet that the recent banking turmoil might not be as damaging to economic growth as recently feared.
Markets are pricing in a 52% probability that the Fed will raise interest rates by another 25 basis points to a range of 5.0% to 5.25% after its meeting on May 3rd, according to the CME FedWatch tool.
The central bank is expected to take its Fed funds rate target to 4.95% by May, according to 30-day Fed Funds futures.
Economic data due on Tuesday include the advanced U.S. trade balance in goods, advanced retail inventories, and advanced wholesale inventories reports for February, due at 8:30 a.m.
The January S&P Case-Shiller home price index and the FHFA home price index, will be released at 9 a.m., followed at 10 a.m. by U.S. consumer confidence for March. All times Eastern.
In the U.K. the 10-year gilt yield
jumped 11.8 basis points to 3.482% after a survey showed Britain’s food prices rising by an annual record of 15% in March.
What are analysts saying
“In a week of little economic data, we look toward a full slate of Fed speak and expect the rhetoric to lean more dovish than that delivered by ultra-hawk [James] Bullard last week (who shared his expectation for the Fed Funds rate to reach 5.625%),” said the team from NatWest Capital Markets led by Jan Nevruzzi, in a note published late Monday.
They noted that Minneapolis Fed President Neel Kaskharki acknowledged the banking sector has brought the U.S. economy closer to a recession, as they also pointed out there’s an auction of 5-year notes on Tuesday, and 7-year notes on Wednesday.