Yields across the Treasury curve mostly dropped as the auction of benchmark 10-year notes fared modestly better than expected, and on the view that the Fed has likely halted its hiking cycle
World stock markets sputtered on Wednesday and the dollar gained as some investors accepted the idea that interest rates will stay higher for longer even though the US Fed may have stopped hiking them.
Yields across the Treasury curve mostly dropped as the auction of benchmark 10-year notes fared modestly better than expected, and on the view that the Federal Reserve has likely halted its hiking cycle.
The dollar has bounced back from last week’s sharp sell-off on growing confidence the Fed has stopped hiking rates, though there is less agreement on whether a rate cut is on the horizon with inflation still above the U.S. central bank’s 2 per cent target.
The Federal Reserve not necessarily hiking anymore might get people a little bit more excited, but does that mean we are going to start cutting aggressively? It is too early to say that, said Marvin Loh, senior global macro strategist at State Street in Boston.
A lot of the questions that we were asking that drove yields higher we are still asking, he said, referring to the bond rally that raised the 10-year yield above 5 per cent two weeks ago. Bond prices move inversely to their yield.
Fed Chair Jerome Powell didn’t comment on monetary policy or the economic outlook in prepared remarks at a U.S. central bank statistic conference on Wednesday. Investors have ramped up speculations for Fed rate cuts in 2024, though the timing is not clear.
Markets are pricing in an around 50 per cent possibility of a rate cut of at least 25 bps as soon as May, as per the CME Group’s FedWatch Tool, up from nearly 41 per cent a week back.
But futures also call for the Fed’s overnight lending rate to stay above 5 per cent through next June.