The data showed that US Treasury yields fell as traders and investors expect the Federal Reserve to either increase or delay an interest rate hike.
US Treasury yields fell on Wednesday as the market anticipates the Federal Reserve’s decision on subsequent interest rate increases. The 2-year Treasury yield fell to 4.656%, losing 4 basis points, while the 10-year Treasury yield fell to 3.808%, after losing 3 basis points.
Traders generally expect the Fed to resume rate hikes by July, with a 63% chance that the next increase will be 25 basis points. Based on data from CME Group’s FedWatch toolTraders are 95% certain that the Federal Reserve will maintain its benchmark interest rate of between 5% and 5.25%. This follows the 4.0% annualized growth recorded in the CPI for May, a level not seen since 2021. In May, the CPI rose 0.1% on a monthly basis, with the core inflation rate (excluding energy and food) at 0.4%. higher.
Treasury revenues fell last month due to the debt ceiling controversy
Treasury yields also reacted negatively to debt ceiling negotiations as the initial June 1 deadline approached. The yield on the 2-year Treasury fell to 4.57% after losing 6 basis points, while the yield on the 10-year Treasury fell to 3.829% after losing 3 basis points.
Prices and yields are inversely related, 6 basis points equal to 0.06%. In general, volatility in treasury returns is used by traders and investors to predict the market and inform trading decisions. When Treasury yields fall, investors usually look for safer assets to hedge their money against events that could affect the monetary value. Possible events include changes in monetary policy, political events, and interest rate hikes.
Earlier this month, the Senate approved a bill to suspend the US debt ceiling for nearly two years. After a 63-36 vote in favor of the bipartisan deal, the US suspended its $31.4 trillion debt ceiling through January 2025. This happened just as it almost missed the deadline, avoiding a debt default for the first time on June 5.
Economists now expect the US Treasury to issue $1 trillion in debt. The Treasury had hit the debt ceiling in January and paid off financial obligations through other means. In a January letter, Treasury Secretary Janet Yellen told House Speaker Kevin McCarthy that the department would take “extraordinary measures.” Then the Treasury Department began selling investments and delaying reinvestment in specific funds to free up much-needed funds.
Now, the treasury must return all the money and pay the accrued interest. Selling debt to balance its books could have some economic impact as Treasury yields could fall further. There is also a risk of a recession, as economists believe the Treasury’s need for liquidity will create competition with banks and hamper lenders’ funding rates,
Bank of America Corp. believes the impact of these events could equal a 25 basis point increase.
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Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify cryptocurrency stories down to the bare essentials so that anyone anywhere can understand without much background knowledge. When he’s not deep into cryptocurrency stories, Tolo enjoys music, loves to sing, and is a movie lover.
