U.S. Treasury yields rose on Wednesday as investors bet that perhaps the Federal Reserve wouldn’t cut rates as aggressively as hoped for this year.
The 10-year Treasury yield was last up by 5.7 basis points to 4.001%. The 2-year Treasury yield was last trading at 4.368% after rising more than 4 basis points. Yields and prices have an inverted relationship and one basis point equals 0.01%.
The 10-year Treasury yield was in a steep downtrend to end 2023 since spooking investors by rising above 5% in October. The 10-year yield closed out last year at around 3.83%. The downturn helped fuel an end-year rally in stocks.
10-year Treasury yield, 6 months
But that has reversed this year with investors questioning whether the market is getting to optimistic about how aggressively the Fed may cut rates this year. The Fed changed its hawkish tune mid-December, forecasting three rate cuts in 2024. But traders began betting the Fed would be even more aggressive than that and also move to lower rates pretty soon into the new year.
Richmond Federal Reserve President Thomas Barkin on Wednesday noted that interest rate hikes were still “on the table” even though the Fed is making “real progress” on inflation.
On Wednesday, minutes from that Fed December meeting will be released at 2 p.m. ET. Those could shed light on what the central bank expects for interest rates, including what economic picture policymakers are looking for before deciding to cut rates, and when they think rate cuts could happen.
The minutes may also provide additional insights into the Fed’s expectations for the overall economy, including inflation and whether a recession can be avoided in the U.S. after the central bank’s rate-hiking cycle.
JOLTs job openings figures for November are also out Wednesday, followed by ADP’s December private payrolls report on Thursday and nonfarm payroll data and unemployment figures, also for December, on Friday.
According to CME Group’s FedWatch tool, markets are currently pricing in an over 70% chance of the first rate cut taking place in March.