Treasury yields rose Tuesday morning after European Central Bank officials indicated markets are getting too optimistic about the pace of interest-rate cuts in 2024.
Thank you for reading this post, don't forget to subscribe!What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
advanced 4.8 basis points to 4.186% from 4.138% on Friday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 5.9 basis points to 4.008% from 3.949% on Friday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
climbed 6.7 basis points to 4.264% from 4.197% on Friday. - U.S. financial markets were closed on Monday for the Martin Luther King Jr. Day holiday.
What’s driving markets
Treasury yields were rising on Tuesday as traders focused on remarks out of Europe, where officials attempted to cool the market’s rate-cut hopes.
European Central Bank governing council member Robert Holzmann said in an interview on Monday at Davos that lingering inflation may stop the ECB from cutting interest rates this year. And on Tuesday, French central bank chief François Villeroy de Galhau, another ECB member, said “we should be patient” about cutting rates.
Back in the U.S., Federal Reserve Governor Christopher Waller will speak on the economic outlook and monetary policy at 11 a.m. Eastern time, with investors looking to see if he matches international peers in pushing back against market expectations for multiple interest-rate cuts this year.
Traders are pricing in a 95.3% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on Jan. 31, according to the CME FedWatch Tool. However, the chance of at least a 25-basis-point rate cut by March is priced at 71.4%, and the central bank is mostly expected to take its fed-funds rate target down to between 3.75%-4% by December.
In U.S. data released on Tuesday, the New York Fed’s Empire State manufacturing-activity gauge plunged 29.2 points in January to negative 43.7, or the lowest level since the depth of the pandemic in May 2020.
