- Mixed US Treasury yields: 10-year bonds rose to 4.136%, while short-term yields decreased slightly.
- Investor indifference to Richmond Fed data: The upcoming decisions of the ECB and the Fed influence the forecasts for rate cuts.
- Fewer Fed rate cuts are expected in 2024. This week, the focus is on US GDP, jobless claims, and the underlying PCE index.
US yields rose on Tuesday, mainly at the belly and high end of the yield curve, while three-month yields and the 2-year yield fell a basis point, each to 5.21% and 4.383%, respectively. At the same time, the yield of the US benchmark 10-year Treasury bonds is at 4.136%, almost three basis points higher, while the coupons of the 20- and 30-year bonds experience an increase of four and four points, respectively.
Investors are attentive to the decisions of central banks in the context of the evolution of economic indicators
In the United States, economic data showed that the Richmond Fed Composite Index and Manufacturing Index experienced a decline, from -11 to -15 in January. On the contrary, the services index experienced an improvement, from 0 to 4.
Although the data was largely ignored by investors, they priced in a rate cut by the Federal Reserve for March 2024, delaying it until May. Investors should note that the European Central Bank (ECB) will review its monetary policy decision on Thursday, ahead of the Federal Reserve’s decision next week.
If the ECB keeps rates higher for longer, it could cause US Treasury yields to rise. Otherwise, a subtle change in the tone of the monetary policy statements of the main central banks could unleash volatility in the markets.
A week ago, investors expected the Federal Reserve to deliver rate cuts totaling 175 basis points by 2024. However, as of this writing, they have revised their expectations. by 141 basis points of monetary easing, thereby reducing his forecast for a rate cut.
Gross domestic product (GDP) for the fourth quarter of last year will be published on the US economic agenda, along with initial claims for unemployment benefits and the Fed’s preferred inflation indicator, the expenditure price index. of underlying personal consumption (PCE).