Monday, March 20, 2023
HomeMarketTreasury yields climb ahead of this week's Fed meeting

Treasury yields climb ahead of this week’s Fed meeting

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Treasury yields rose Monday, as investors awaited a Federal Reserve decision this week that’s expected to deliver a quarter of a percentage point rate hike and clues to future moves.

What yields are doing
  • The yield on the 2-year Treasury note
    rose 3.3 basis points to 4.24%. Yields and debt prices move opposite each other.

  • The 10-year Treasury note yield
    was up 3.2 basis points at 3.552%.

  • The yield on the 30-year Treasury bond
    increased 2.2 basis points to 3.656%.

Market drivers

The Fed will conclude a two-day policy meeting on Wednesday that’s expected to deliver a rate increase of 25 basis points, or a quarter of a percentage point— a downshift from the outsize 75 and 50 basis point increases seen in 2022 that contributed to a sharp selloff in both bonds and stocks.

The Fed has signaled that it intends to raise the fed-funds rate above 5% and keep it there for some time as it looks to quash inflation. Money-market traders, however, have priced in the potential for rate cuts before year-end.

See: The Fed and the stock market are on a collision course this week. What’s at stake.

Data on Friday showed that the cost of U.S. goods and services rose 5% year over year in December, slowing from 5.5% a month before, signaling further progress in the Fed’s inflation fight.

The Fed’s preferred measure of inflation — the PCE price index — peaked at 7% last summer, helped along by a retreat in energy prices, but remains high above the central bank’s target of 2%.

What analysts say

The Fed is likely to “reiterate that it anticipates ‘ongoing increases’ in interest rates will be appropriate. And Chair Powell will probably use his press conference to push back against market expectations for 50bp of rate cuts in the second half of this year,” wrote economists at UniCredit Bank, in a note.

“To reinforce the message, the Fed might decide to include a line in the post-meeting statement indicating that once rates rise to ‘sufficiently restrictive’
levels, they will likely remain there for ‘some time,’” they wrote.


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