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Yields Decline Before The Fed And Treasury Make Their Announcements

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At the beginning of a busy week filled with economic data and a Federal Reserve decision that will influence the direction of interest rates this year, U.S. Treasury yields fell on Monday in less trading activity than usual.

Interest Is Unchanged

Investors are anticipating the release of the U.S. nonfarm payrolls data on Friday and the Federal Open Market Committee’s (FOMC) rate decision and announcement on Wednesday. Regarding the rate decision, nothing spectacular is anticipated because it is generally believed that the Federal Reserve would keep interest rates unchanged.

However, some investors think the Fed may abandon its preference for raising rates. The benchmark 10-year yield fell 6.3 basis points to 4.097% in early afternoon trading.

Based on LSEG’s rate probability software, federal funds futures priced in five rate cuts of 25 basis points apiece for 2024 on Monday. With a 91% probability, the market is also completely pricing in the first rate decrease to happen at the May meeting.

Less than 50% of futures predict a rate cut by the Fed at the March meeting, compared to as much as 80% three weeks ago.

Increase In Unemployment

Wall Street economists predict that the U.S. economy produced 180,000 jobs in January, compared to 216,000 in December. It is anticipated that the jobless rate has slightly increased to 3.8%.

Fed

(Photo from: Marca.com)

Ahead of the February refunding announcement, which will include information on auction sizes, the focus will also be on the U.S. Treasury’s borrowing projections for the first and second quarters, which are scheduled to be disclosed later on Monday.

Analysts noted that if Monday’s borrowing estimates are higher or lower than anticipated, they may have a significant impact on the market. The bond market was rattled when the third quarter’s funding needs, totaling $1.007 trillion, were revealed on July 31.

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