NEW YORK- Benchmark 10-year Treasury yields briefly climbed above 4 percent before dipping on Wednesday as investors digested data and the minutes of the Federal Reserve’s most recent policy meeting to gauge whether the US economy is set for a soft landing.
Yields had plummeted to six-month lows in December following signs of cooling inflation and signals from the Federal Reserve that its most aggressive rate-hiking cycle since the 1980s was over. But over the last two weeks yields have inched upward as traders re-evaluate their expectations of rate cuts.
Markets are pricing in a 29 percent chance that the Fed holds benchmark rates in their range of 5.25 percent to 5.5 percent at its March policy meeting, up from a 21 percent chance seen on Tuesday, according to CME’s FedWatch Tool. Futures markets see a 65 percent chance of a 25-basis-point rate cut.
“This will really be a data-dependent Treasury market as the Fed looks to maybe walk back some of the dovishness from their last meeting” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
Federal Reserve officials appeared increasingly convinced at their meeting last month that inflation was coming under control, according to the minutes of the central bank’s Dec. 12-13 policy meeting released Wednesday afternoon.
“Almost all participants indicated that … a lower target range for the federal funds rate would be appropriate by the end of 2024,” the minutes said.
The yield on 10-year Treasury notes was down 3.5 basis points at 3.909 percent . It briefly rose as high as 4.1 percent earlier in the day and rose 2 basis points after the Fed minutes were released before dipping again. The yield on the 30-year Treasury bond was down 3 basis points to 4.054 percent .
The two-year US Treasury yield, which typically moves in step with interest-rate expectations, was down 0.2 basis points at 4.326 percent .
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes seen as an indicator of economic expectations, was at -41.3 basis points, down approximately 5 basis points from late Tuesday.
