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Ahead of the Fed Decision, Treasury Yields Remain Near the Top of Their Four-Month Range

March 20, 2024
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Wednesday morning saw the benchmark 10-year Treasury yield maintaining proximity to an almost four-month peak, as investors awaited the Federal Reserve's monetary-policy decision and projections.

Current Scenario:The 2-year Treasury yield remained relatively stable at 4.691%, barely shifting from its previous mark of 4.692% on Tuesday. Yields exhibit an inverse relationship with prices. Likewise, the 10-year Treasury yield experienced a slight decline, settling at 4.292% compared to Tuesday's 4.296%. Notably, it had reached 4.339% on Monday, marking its highest level since November 30. The 30-year Treasury yield also showed minimal variation, resting at 4.439% versus the prior day's 4.440%.

Market Drivers:Investor attention remains fixated on the Federal Reserve's commentary regarding the economy and potential adjustments to interest rates by the Federal Open Market Committee (FOMC).

Anticipation builds ahead of the FOMC's release of its monetary-policy verdict, interest-rate projections, and economic forecasts scheduled for 2 p.m. Eastern time. Fed Chair Jerome Powell is slated to host a press briefing at 2:30 p.m.

There are concerns that the median forecast for the trajectory of the fed-funds rate might indicate only two 25-basis-point rate reductions this year instead of the anticipated three.

Presently, market sentiment suggests a 99% likelihood that the Fed will maintain rates within the range of 5.25% to 5.5%, according to the CME FedWatch Tool. Traders are speculating a 60.4% probability of a 0.25% rate cut by June, with growing consensus around the prospect of three cuts by December.

Expert Opinions:Kevin Rendino, CEO of 180 Degree Capital, a publicly traded investment management firm based in Montclair, N.J., emphasized the significance of the Fed's interest-rate projections, often referred to as "the dots."

Rendino noted, "It’ll only take two FOMC members to get more hawkish and reduce the rate cuts to two this year." He highlighted the Fed's data-driven approach, particularly its vigilance towards inflation, suggesting cautiousness in altering rates prematurely. However, he underscored the market's expectation of no fewer than three rate reductions.

Moreover, Rendino expressed concerns regarding the impact of an unfavorable interest-rate environment on high-yield corporate debt and smaller enterprises, particularly those that faced significant challenges in the previous year.

Cathy Hills
Associate Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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