The Bond Market Eases as Investors Await the Fed Meeting

Monday morning saw minimal movement in interest rates across various maturities of U.S. government bonds, following a significant increase in rates last week and in anticipation of the upcoming Federal Reserve policy meeting scheduled for this week.

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Here's a breakdown of the current rates:

• The yield on the 2-year Treasury bond stood at 4.730%, a marginal uptick of less than 1 basis point compared to Friday's rate of 4.721%. It's important to note that yields move inversely to bond prices.
• The 10-year Treasury bond yield was at 4.317%, marking a slight decrease of 1.4 basis points from Friday's rate of 4.303%.
• Similarly, the yield on the 30-year Treasury bond was at 4.443%, showing a modest increase of 1.6 basis points from Friday's rate of 4.427%.

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In terms of market dynamics, there appears to be a tilt towards upward pressure on Treasury yields leading up to the conclusion of the Fed's two-day meeting ending on Wednesday. Thierry Wizman, the global FX and rates strategist at Macquarie, highlighted this sentiment, suggesting that the Fed may be compelled to acknowledge the upward trends in core and supercore inflation indicators as revealed in recent consumer price index reports. Wizman suggested that Fed officials might revise their median estimate for the longer-term fed-funds rate accordingly.

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Ben Emons, senior portfolio manager and head of fixed income at NewEdge Wealth in New York, echoed a similar sentiment, noting a prevailing narrative in markets favoring a scenario without rate cuts. He emphasized the Fed's reliance on Treasury yields to manage inflationary pressures, suggesting that the possibility of 10-year yields breaching the 5% mark is increasingly likely.

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Last week, there was a notable increase in yields, with the 2-year yield experiencing its largest weekly surge since January 19, rising by 23.7 basis points. Similarly, the 10-year and 30-year yields saw significant increases of 21.5 basis points and 16.6 basis points, respectively, marking their most substantial weekly gains since October 20 and January 5.

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The sole major U.S. data release on Monday was the home-builder confidence index, which climbed by three points to reach 51 in March, the highest level since July of the previous year. This uptick was attributed to a shortage of existing housing inventory, driving buyers towards newly constructed homes, along with robust demand and declining mortgage rates from the peak levels witnessed last fall.

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In the global arena, there's anticipation surrounding the Bank of Japan's potential decision to move away from negative interest rates on Tuesday, a move that could potentially impact financial markets just a day before the Fed's announcement.

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