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Bond Report: Ten-year Treasury yield steady, while 2-year rate drops after Fed minutes

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Treasury yields edged lower Wednesday as investors awaited U.S. economic data, including January retail sales, and prepared to pore over the minutes of last month’s Federal Reserve meeting.

Tensions over Ukraine also remained in focus as NATO’s secretary-general said there was no sign of a de-escalation by Russia even as Moscow said it had continued to withdraw military units from the border.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.039%

was at 2.035%, down from 2.044% at 3 p.m. Eastern on Tuesday, which was the highest yield for the maturity since July 30, 2019, based on 3 p.m. levels, according to Dow Jones Market Data. Yields and debt prices move opposite each other.

The 2-year Treasury note yield
TMUBMUSD02Y,
1.576%

was 1.564%, compared with 1.567% on Tuesday afternoon.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.346%

stood at 2.348%, down from 2.36% late Tuesday.

What’s driving the market?

Treasury prices fell Tuesday, pushing up yields, as worries over a potential Russian invasion of Ukraine faded, sapping safe-haven demand for U.S. government paper. Investors turned their attention back to persistent inflation pressures and expectations the Federal Reserve will begin lifting interest rates aggressively and otherwise tightening monetary policy.

U.S. economic data on tap for Wednesday include January retail sales at 8:30 a.m., which economists surveyed by The Wall Street Journal expect to rebound by 2.1% after a 1.9% drop in December. Excluding autos, sales are seen up 0.8%.

The January import price index is due at the same time and is expected to show a rise of 1.2%. January data on industrial production and capacity utilization is set for release at 9:15 a.m., while December building inventories and a February home builders index reading are due at 10 a.m.

Minutes of the Fed’s January meeting are due at 2 p.m., which will be watched for clues to the pace and scope of rate hikes and how the central bank is thinking about the eventual reduction of its nearly $9 trillion balance sheet.

Meanwhile, Ukraine remains on the radar. Russia, which has massed around 150,000 troops north, east and south of Ukraine, said Wednesday that it pulled more units back to bases. However, NATO Secretary-General Jens Stoltenberg said there no signs that Russia had reduced its military buildup. U.S. President Joe Biden on Wednesday said that the U.S. had not verified that Russian units had returned home and that an invasion remained “distinctly possible.”

What do analysts say?

The minutes of the Fed’s Jan. 15-16 meeting “will be studied closely for signals of 1) the likely pace of rate hikes, including the possibility of a 50 [basis point] move and/or hikes at consecutive meetings and 2) details on the likely timing, pace and composition of balance sheet reduction,” wrote analysts at UniCredit Bank, in a note. “Fed Chair Jerome Powell’s postmeeting press conference was notably hawkish, which will probably be reflected in the minutes amid increasing concern over inflation developments.”

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