With The Banking Stress Subsiding, The Two-Year Treasury Yield Has Stabilized Above 4%

On Tuesday, bond yields rose as a result of the ongoing easing of stress in the banking sector, which led to a decrease in the buying of supposed safe-haven assets.

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Here's what's going on

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The yield on government bonds also continued to move higher as traders bet that the recent banking turmoil might not have been as severe a blow to economic growth as had been previously feared, despite another day of calmer conditions in the financial sector.

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As per CME's FedWatch tool, there is an estimated 52% probability that after the Fed's meeting on May 3rd, rates will move to a range of 5.0% to 5.25%, which is 25 basis points higher than they were before the meeting.

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Fed funds futures indicate that the central bank will likely increase its target rate by 4.95% by the end of May, based on its 30-day forecast.

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Among the economic data releases due on Tuesday are the advanced U.S. trade surplus in goods, advanced retail inventory figures, and advanced wholesale inventory figures for February, which are both due at 8:30 a.m.

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We expect to see the first release of the S&P Case-Shiller home price index for January, followed by the FHFA home price index for March at 10 a.m., followed by the U.S. consumer confidence data for March at 9 a.m. All times are Eastern.

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According to a survey, Britain's food prices increased by a record 15% for the first time in March, setting an annual record for the country's 10-year gilt yield, jumping 11.8 basis points to 3.482%.

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How do analysts view the situation?

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"As a result of a lack of economic data, we are looking forward to a full slate of Fed speeches and expect the rhetoric to be more dovish than Bullard's last week's remarks (whose forecast for the Fed Funds rate is 5.625%)." 

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According to a note published late Monday by NatWest Capital Markets led by Jan Nevruzzi, the Fed Funds rate should reach 5.625%.

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They also pointed out that a 5-year note auction will be held on Tuesday, and a 7-year note auction will be held on Wednesday by Minneapolis Fed President Neel Kaskharki.