The yield on US Treasury bonds has decreased significantly, while investors are preparing for the Fed meeting, and also expect the publication of US labor market data.
The yield on 5-year Treasury bonds fell by 6.1 basis points, reaching 4.00%, while the yield on 30-year bonds was 4.338% (-5.2 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 4.1 basis points to 4.324%, while the yield on 10-year bonds fell to 4.099% (-6.1 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 23 basis points.
The Fed’s January meeting will begin Tuesday before the central bank’s interest rate decision is published Wednesday. Economists said the Fed is likely to keep current policy settings in place, but Chairman Powell's comments will be scrutinized to assess whether the U.S. central bank is ready to start cutting interest rates. According to the CME FedWatch Tool, markets see a 47.7% probability of a 25 basis point rate cut at the Fed meeting in March and a 89.0% probability of a rate cut in May. In 2024, futures traders now expect five rate cuts of 25 bps.
As for the data, later this week the JOLTs job openings report for December (on Tuesday), the ADP employment report for January (on Wednesday) and the nonfarm payrolls report for January (on Friday) will be published. Nonfarm payrolls rose by 216,000 in December, continuing a trend of slowing but steady monthly job growth. Hiring in the government, healthcare and leisure and hospitality industries continued to drive overall employment growth. Meanwhile, the unemployment rate remained stable at 3.7%, while average hourly wages rose 0.4% m/m, matching November's pace. Economists expect nonfarm payrolls to rise by 173,000 in January. While job growth has held up surprisingly well recently, there are several signs of a further slowdown in the coming months. Overall, fewer industries are adding headcount each month, while job openings and hiring plans continue to decline. Economists also expect the unemployment rate to rise to 3.8% and average hourly wages to increase by 0.3%.