US Treasury yields are showing mixed dynamics, as market participants took a wait-and-see attitude ahead of the Fed meeting, the results of which will be announced on Wednesday.
The yield on 5-year Treasury bonds fell by 0.4 basis points, reaching 4.32%, while the yield on 30-year bonds was 4.442% (+1.4 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 1.2 basis points to 4.711%, while the yield on 10-year bonds increased to 4.308% (+0.4 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 40 basis points.
Investors expect the Fed to leave policy parameters unchanged at the end of the March meeting, but will provide new clues about when and how much interest rates may be lowered. The latest inflation data exceeded economists' forecasts and reinforced the likelihood that the Fed will keep rates at the current level for a longer time. Fed policymakers have previously stated that their rate decisions will depend on the data and that they are still looking for more evidence that inflation is declining. According to the CME FedWatch Tool, markets see a 5.5% probability of a 25 basis point rate cut at the Fed meeting in May, and a 58.4% probability of a rate cut in June (compared to 73.3% last Friday), with 72 basis points of cuts priced in for this year.
Today, investors will focus on data on the US housing market, namely the NAHB housing market index for March. In February, the index rose by 2 points to 48 points, reaching a 6-month high. Developer sentiment improved amid expectations that mortgage rates will continue to moderate in the coming months, the prospect of future rate cuts by the Fed, and a projected lack of existing inventory. Economists expect the index to remain at 48 points in February.