A Holiday-Shortened Week Starts With Treasury Yields Edging Off Recent Lows

Early on Monday, bond yields experienced an increase, but key Treasury yields remained more than 50 basis points below the 16-year highs surpassing 5% that were reached last month.

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In terms of specifics, the yield on the 2-year Treasury (BX:TMUBMUSD02Y) added 1.3 basis points, reaching 4.917%. Conversely, the yield on the 10-year Treasury (BX:TMUBMUSD10Y) rose by 3.7 basis points to 4.477%, and the yield on the 30-year Treasury (BX:TMUBMUSD30Y) climbed 3.3 basis points to 4.625%. It's important to note that yields move inversely to prices.

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The shift in Treasury yields is attributed to traders monitoring developments during the holiday-shortened week, waiting to see if the prevailing narrative holds. This narrative suggests that recent data indicating a cooling job market and inflation ensures that the Federal Reserve has concluded its interest rate hikes in the current cycle.

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Given the closure of markets on Thursday for Thanksgiving and early closure of Treasury trading on Black Friday, investors face a concentrated set of potential macroeconomic catalysts.

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Scheduled U.S. economic updates on Monday include leading economic indicators for October, set to be released at 10 a.m. Eastern. Richmond Fed President Tom Barkin is expected to appear on Fox Business at noon.

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The release of the Fed's minutes from its previous rate-setting meeting, initially planned for Wednesday, will be moved forward to Tuesday. Similarly, the weekly jobless claims report will now be published on Wednesday.

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Before these events unfold, markets are currently pricing in a 99.8% probability that the Fed will keep interest rates unchanged within the range of 5.25% to 5.50% after its upcoming meeting on December 13th, according to the CME FedWatch tool. The likelihood of no movement in January is similarly priced.

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Looking ahead, the chances of a 25 basis point rate cut at the subsequent meeting in March have increased to 29%, up from 10% just a week ago.

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At 1 p.m., the Treasury is set to auction $16 billion of 20-year bonds.

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Regarding the potential contents of the Fed's November meeting minutes, Jim Reid at Deutsche Bank commented on the perceived dovishness, stating, "We will see if it was as dovish as the market interpreted at the time." He noted that Federal Reserve Chair Jerome Powell's subsequent speech was considered slightly less dovish, suggesting an attempt to alter the market's interpretation of the meeting. Reid emphasized that the bias of the committee can evolve over time, particularly as financial conditions have notably loosened since the meeting due in part to the Fed's concerns.

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