Treasury yields were higher Friday morning, pushing longer-term rates toward more 2024 highs, after data showed consumer sentiment soaring this month.
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 4.7 basis points to 4.402%, after ending at a one-week high of 4.355% on Thursday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
jumped 4.4 basis points to 4.186% from Thursday’s level of 4.142%, which was the highest since Dec. 12. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
rose 2.6 basis points to 4.397% after hitting its highest since Dec. 4 on Thursday, at 4.371%.
What’s driving markets?
Data released by the University of Michigan on Friday showed that consumer sentiment soared in January to reach its highest level since July 2021, showing that the sharp increase in December was no fluke.
Year-ahead inflation expectations softened to 2.9% after plunging in December. The current reading is the lowest since December 2020 and is now within the 2.3%-3% range seen in the two years prior to the pandemic. Long-run inflation expectations also edged down, to 2.8% — falling just below the 2.9-3.1% range seen for 26 of the last 30 months.
Other data released this week showed initial jobless benefit claims fell to a 16-month low in mid-January and December retail sales jumped by more than expected — both of which have helped to support the case that investors may have overestimated the extent to which the Federal Reserve can cut interest rates this year.
Fed officials have joined in the pushback against the idea of any rate cuts soon, with Atlanta Fed President Raphael Bostic reiterating on Thursday that those moves won’t likely come until later in the year. On Friday, Chicago Fed President Austan Goolsbee, speaking with CNBC, declined to say when he thinks the central bank will cut rates.
Markets are pricing in a 97.4% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on Jan. 31, according to the CME FedWatch Tool. The chance of no action in March was seen at 46.8%, up from 19% a week ago. However, fed-funds futures traders mostly held on to expectations for five to six quarter-point cuts by December. The Fed’s main policy target is currently 5.25%-5.5%.
What strategists are saying
“Today is the last session before the Fed’s pre-FOMC meeting period of radio silence,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.
“We’re anticipating an effort to reinforce the recent messaging that a March rate cut would be too soon given the prevailing macro considerations and the resilience of the labor market,” they wrote in a note. “Meaningful process has been made on the inflation front, although there is more work yet to be done.”
