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Treasury yields eased back on Friday, as investors awaited the last big economic indicator ahead of the Federal Reserve’s policy meeting next week.
What’s happening?
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.051%
eased two basis points to 4.052%, a day after a 17.3-point surge to 4.097% on Thursday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.451%
slipped down 2% to 3.477% from Thursday, when it climbed 9.8 basis points to 3.527%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.681%
dropped 4 basis points to 3.705% from 3.688% on Thursday.
What’s driving markets?
Treasury yields surged by the most in a month on Thursday, after data including lackluster first-quarter economic growth in the U.S. prompted traders to price in a bigger chance of interest-rate hikes by the Fed next week and in June. The breakdown showed a jump in consumer spending and signs of price pressures.
Read: A much predicted U.S. recession still hasn’t happened thanks to consumers
Separate reports Thursday showed a sharp fall in weekly jobless claims and a drop in pending home sales.
In the spotlight for Friday will be the PCE report for March, due at 8:30 a.m. Eastern. The core component is one of the Fed’s most closely watched inflation gauges. The first-quarter employment cost index, alongside personal income and spending for March is due at the same time.
The likelihood of a May rate hike by the Federal Reserve is now seen at 88%., which would lift the fed-funds rate target to between 5% and 5.25%, according to the CME FedWatch Tool.
What are analysts saying?
“The Fed is expected to hike 25 basis points next Wednesday, with the suspense for the market centering on how willing the Fed is to confirm market expectations that this will be the last rate hike for the cycle, or at least for now,” said a team of strategists at Saxo Bank, in a note to clients.
“Indeed, despite Fed pushback, the market continues to price that the economy will weaken sufficiently in the coming six months to see the Fed cutting rates as soon as September, with more than 50 basis points of easing priced through the December FOMC meeting,” said Saxo Bank.
