Treasury Yields Remain Steady as Traders Await Fed Minutes

Wednesday morning saw little movement in Treasury yields as traders awaited the release of the minutes from the Federal Reserve's January meeting.

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Here are the key yield movements:

• The yield on the 2-year Treasury (BX:TMUBMUSD02Y) experienced a slight dip of less than 1 basis point, moving from 4.610% on Tuesday to 4.602%.
• The yield on the 10-year Treasury (BX:TMUBMUSD10Y) fell by less than 1 basis point, shifting from 4.276% on Tuesday to 4.269%.
• The yield on the 30-year Treasury (BX:TMUBMUSD30Y) remained relatively unchanged at 4.442%, compared to 4.448% on Tuesday.

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Traders were cautious in establishing bold positions, particularly in anticipation of the release of the minutes from the Federal Reserve's policy meeting on January 30-31, scheduled for 2 p.m. Eastern time. Analysts are keenly watching for any indications of lingering concerns about inflationary pressures, given stronger-than-expected inflation and job data that have prompted Fed officials to resist an interest-rate cut in March.

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According to the CME FedWatch tool, Fed-funds futures traders are currently pricing in a 93.5% probability that the Fed will maintain interest rates within the range of 5.25% to 5.50% on March 20. There is an 80% chance of at least a 25-basis-point rate cut by June, and the consensus is for the central bank to deliver at least three quarter-point rate cuts by December.

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Additionally, a Treasury auction of $16 billion worth of 20-year notes is scheduled for 1 p.m.

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Chris Low, chief economist at FHN Financial, noted that discussions at the Jan. 30-31 FOMC meeting occurred before the revelation of strong job growth above 300k in December and January. It was also before the January Consumer Price Index (CPI) and Producer Price Index (PPI) surprises, which introduced uncertainty about the inflation outlook in the markets.

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Low anticipates that the minutes will likely reveal cautious inflation optimism. He highlighted Federal Reserve Chair Jay Powell's ability to effectively capture the committee's mood and communicate it during press conferences, providing a strong indication of what may be reported in the released minutes.

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In summary, the stability in Treasury yields reflects a wait-and-see approach among traders, anticipating insights into the Federal Reserve's stance on inflation and interest rates from the upcoming minutes of the January meeting.

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