Bond Report: Treasury yields mildly mixed as investors await Powell speech and data deluge

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Treasury yields were mildly mixed on Wednesday ahead of a speech by Federal Reserve chairman Jay Powell and a looming large bundle of important economic data.

What’s happening
  • The yield on the 2-year Treasury TMUBMUSD02Y, 4.483% rose by less than 1 basis point to 4.479%. Yields move in the opposite direction to prices.
  • The yield on the 10-year Treasury TMUBMUSD10Y, 3.734% retreated 1.4 basis points to 3.735%.
  • The yield on the 30-year Treasury TMUBMUSD30Y, 3.792% fell less than 1 basis point to 3.799%.
What’s driving markets

Moves in sovereign bonds were relatively meager as Investors waited to see what Powell says in a speech due at 1:30 p.m. at the Brookings Institution. A busy few days of important economic data is also contributing to the caution.

Worries about global growth are helping suppress bond yields after data showed China’s manufacturing sector falling deeper into contraction territory.

Markets are pricing in a 68% probability that the Fed will raise interest rates by another 50 basis points to a range of 4.25% to 4.50% after its meeting on December 14th, according to the CME FedWatch tool. The central bank is expected to take its Fed funds rate target to 5.0% by June 2023, according to 30-day Fed Funds futures.

Data released on Wednesday for the Fed to peruse include the November ADP employment report at 8:15 a.m.; real GDP data at 8:30 a.m.; the November Chicago PMI report at 9:45 a.m; October pending home sales alongside job openings and quits at 10 a.m.; and the Fed’s Beige Book at 2 p.m..

There was good news from Europe, where eurozone inflation fell for the first time in 18 months, dropping to 10% in November from 10.6% the month before. Economists had forecast a reading of 10.4%. German benchmark bunds TMBMKDE-10Y, 1.942% were not impressed, though, the yield gaining 3 basis points to 1.953%.

However, U.K. 10-year gilt yields TMBMKGB-10Y, 3.132% were up 2 basis points to 3.118% after the British Retail Consortium said shop price inflation rose to 7.4% in November, the fastest on record.

What are analysts saying

“I think that Powell will lean hawkish, as he has tended to be the most hawkish of the committee and there has been a significant easing in financial conditions since the last CPI report. I do think he will acknowledge that the pace of tightening is likely to slow down, but I also think he can contextualize this around policy rates slowing in their rise but still needing to rise more, and likely to stay elevated for an extended period of time,” said John Briggs, Global Head of Economics & Markets Strategy at NatWest Markets.

“And while the U.S. front end is fairly well priced for this in our opinion, long yields have fallen considerably in the last few weeks, and I think have some room to tactically rise from here,” Briggs added.

This article was originally published by Marketwatch.com. Read the original article here.

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