10-year US Treasury yield rises to 4.17%... Expectations of rate cuts retreat amid strong economic indicators

Source: BlockMedia Original Title: [New York Bonds] US 10-Year Treasury Yield Rises to 4.17% Amid Signs of Economic Resilience and Fading Rate Cut Expectations Original Link: The US 10-year Treasury yield in the New York bond market rose by 2.9bp(0.029%p) to 4.167% from the previous trading day. Overall strong economic indicators have led to a reassessment that the Federal Reserve(Fed·Federal Reserve) may delay rate cuts, causing yields to increase.

The US Department of Labor announced that weekly new unemployment claims totaled 198,000, a decrease of 9,000 from the previous week, significantly below the analyst forecast(215,000) compiled by Reuters. The solid employment market has reaffirmed resilience, easing some concerns about economic slowdown.

During the same period, US import prices continued their upward trend for the second consecutive month, increasing by 0.4%. Additionally, regional manufacturing indices for January released by the New York and Philadelphia Federal Reserve Banks exceeded market expectations, highlighting downward rigidity in the US economy.

Market participants believe that these indicators could directly influence the Fed’s policy decisions. Joan Bianco, Senior Strategist at BondBloxs Investment, said, “The current data points are actually reducing expectations for Fed rate cuts,” adding, “The possibility of a cut at this month’s meeting is almost nonexistent, and even the June cut expectations, which are gathering, have recently decreased in probability.”

According to CME FedWatch, the probability of a rate cut at this month’s FOMC meeting is only 5%, and the chance of a March cut has fallen to 21.6%, down sharply from nearly 50% a month ago.

Looking at the yield movements by maturity, the 2-year yield, which is sensitive to monetary policy, rose by 4.4bp( to 3.558%, while the 30-year yield fell slightly by 0.8bp) to 4.787%. As a result, the spread between the 2-year and 10-year yields widened to 59.6bp, reflecting some expectations of normalization in the yield curve.

Speakers from the US Federal Reserve also maintained a hawkish tone. Chicago Fed President Charles Evans stated, “With the labor market sufficiently stable, the Fed should focus on price stability,” and San Francisco Fed President Mary Daly mentioned, “Policy adjustments should be cautious and gradual.” Kansas City Fed President Jeff Schmitt reaffirmed his stance, saying, “Inflation is still excessively hot,” and he does not support rate cuts for the time being.

The breakeven inflation rate, reflecting market expectations of inflation, for the 5-year TIPS (Treasury Inflation-Protected Securities) reached 2.37%, the highest in two months, and for the 10-year maturity, it stood at 2.297%. The market is projecting an average annual inflation rate of around 2.3% over the next decade.