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Benchmark U.S. Treasury yields stalled as traders await Fed decision – News Opener

U.S. benchmark bond yields were little changed on Wednesday as traders kept their powder dry ahead of the Federal Reserve’s monetary policy decision later in the session.

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Traders are pricing in a 90% probability that the Fed will announce at 2 p.m. Eastern that it is raising its benchmark interest rate by another 75 basis points to a range of 3.75% to 4.00%.

The central bank has swiftly driven its borrowing costs up from zero in February as it seeks to damp inflation running near 40-year highs. Now many investors are hoping the Fed may signal it is prepared to decelerate its pace of monetary tightening in coming months as it allows its previous efforts to take effect.

Yet, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said it was too early to expect a major shift in stance from the Fed on Wednesday. In September, Fed Chair Jerome Powell said that at some point it will be appropriate to slow the pace of increases, Shepherdson noted.

“As of now, inflation and labor market criteria have not been met, so Mr. Powell can’t pre-announce any intention to shift to slower rate increases without contradicting what he said just six weeks ago,” Shepherdson concluded.

Henry Allen, strategist at Deutsche Bank, concurred with the view that any Fed policy U-turn was some way off.

“As we arrive at the latest decision day for the Fed, any remaining hopes of a dovish pivot continued to fizzle out over the last 24 hours, with futures once again pricing in a terminal fed funds rate above 5%,” wrote Allen in a morning bulletin.

“The main driver behind that was another round of U.S. data yesterday, which showed that labor markets were tighter and the economy was in better shape than previously thought, which in theory should give the Fed more space to keep hiking rates,” he said.

Before the Fed’s decision is released, the ADP private sector employment report will be published at 8:15 a.m. ET ahead of the U.S. Labor Department’s nonfarm payrolls numbers for October on Friday.

Nervousness around potential sharp shifts in bond yields, and concerns about meager market liquidity, leaves the ICE BofAML MOVE index, a gauge of expected Treasury volatility, hovering near 13-year highs.

Source: Yahoo Finance

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