US TSYS: Yields Drift Lower in Today's Asia-Pac Session
TYM5 has traded in a tight 110-19/110-27+ range so far in today's Asia-Pac session. Going into the London open, it is dealing near its highs around 110-26,+0.02 from its close.
- The US 10-year yield has continued to drift lower in a tight range of 4.3408 - 4.3856 in Asia. Going into the London open dealing around 4.3485%.
- The market is starting to realise the FED will not be stepping in to rescue it by cutting rates, as long as it expects inflation to track higher on the back of Trump’s policies.
- The Fed’s Waller said yesterday the impacts of the tariffs on inflation would be temporary. He also described the new policy as “ one of the biggest shocks” on the US economy in decades, the effects of which are highly uncertain.
- Bostic spoke after the US market close: ”Right now range of possible outcomes has multiplied. Inflation still much higher than target. Not in position to boldly move in any direction, need more clarity.”
- Bessent says the Treasury has a big toolkit if needed for Bonds.
- Dips in the 10-year yield back towards 4.25/30% should now find supply, any move back to 5% and above would become problematic for equities.
- Upcoming Data/Events: Retail Sales and Fedspeak from Powell on Wednesday.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
