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Treasury yields were little changed Wednesday morning ahead of the release of minutes from the Federal Reserve’s May 2-3 meeting.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.381%
was 4.304%, down from 4.333% on Tuesday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.736%
was little changed at 3.697% versus 3.696% on Tuesday. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.977%
was 3.95% versus 3.951% as of Tuesday.
What’s driving markets
Treasury yields were mixed Wednesday morning ahead of the minutes from the Federal Reserve’s May meeting, due at 2 p.m. Eastern time. There is no major economic data scheduled to be released.
Meanwhile, yields on 1-month through 1-year Treasury bills were all above 5% and either at or near multiyear highs as concerns about the debt-ceiling deadline continued to pressure the market for government debt.
The rate on the 1-month Treasury bill, which has been one of the maturities trading as a proxy for debt-ceiling angst, was 5.678% as of 9:50 a.m., according to Tradeweb — as investors continued to flee short-term government paper. It was not far from from its May 12 closing level of 5.68%, which was the highest level since at least June 2010.
Signs of stress were evident elsewhere, too: Tuesday’s 21-day T-bill auction drew a 6.2% yield, indicating investors remained uneasy about the lack of progress on the debt ceiling in Washington.
Markets priced in a 66% probability that the Fed will leave interest rates unchanged at between 5%-5.25% on June 14, according to the CME FedWatch tool. Traders also see a 33% chance of another quarter-of-a-percentage-point rate hike that would take the Fed’s main interest rate target to between 5.25%-5.5%.
U.K. government bonds were the notable underperformers on Wednesday, with 2-year yields
TMBMKGB-02Y,
spiking 21 basis points to 4.34% after inflation for April came in higher than expected, at 8.7% on a year-over-year basis. Traders are now pricing in a peak Bank of England interest rate of 5.5%, compared with 4.5% currently.
What analysts are saying
“The U.S.’s debt ceiling crisis is still waiting for a political resolution, following reports last night that the negotiators from both sides — the White House and the Congressional Republican leadership — were still at a stand-off,” said Thierry Wizman, Macquarie’s global FX and interest rates strategist. “But the bigger bad news came from the other side of the pond today, with the report that although U.K. headline inflation slowed sharply in the year to April (to 8.7% year-over-year), core inflation jumped to the highest level since March 1992 – at 6.8%.”
