Treasury yields jumped Wednesday morning as traders pulled back from the prior session’s aggressive round of buying that had produced the biggest one-day declines in 2- and 10-year rates since March.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 8 basis points to 4.893% from 4.813% on Tuesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
also rose 8 basis points to 4.52% from 4.440% Tuesday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
climbed 5.9 basis points to 4.678% from 4.619% late Tuesday. - On Tuesday, 2-, 10- and 30-year rates fell respectively by 22.4 basis points, 19.1 basis points, and 12.4 basis points.
What’s driving markets
Participants in the Treasury market viewed Tuesday’s session as a bit overextended and returned on Wednesday to see some “profit-taking going on” ahead of a $16 billion 20-year auction tomorrow, according to Tom di Galoma, co-head of global rates trading for BTIG in New York.
Meanwhile, data released on Wednesday showed that producer prices fell 0.5% for October, the largest decline since April 2020. That report came just a day after inflation based on the U.S. consumer price index for last month was weaker than expected.
In addition, retail sales fell for the first time in seven months or by 0.1% for October. It was the first negative reading since March, the government reported. And the New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, rose to its highest level since April, the regional Fed bank said Wednesday.
Traders are pricing in a 99.8% probability that the Fed will leave interest rates unchanged between 5.25%-5.5% on Dec. 13, according to the CME FedWatch Tool. The chance of a 25-basis-point rate cut by May was seen at 48.5%, up from 32.1% a month ago.
What analysts are saying
“Inflation crosswinds over the next couple of months could contribute to market turbulence in the near term, but our view remains that by spring or summer, inflation will have fallen far enough for the Fed to consider a first rate cut — a supportive move for both bonds and stocks,” said Solita Marcelli, chief investment officer of the Americas for UBS Global Wealth Management. “This supports our expectations for positive returns for both quality fixed income and equities over the next six to 12 months, making it a good time to add to diversified balanced portfolios.”
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