Treasury Yields Climb Amid Geopolitical Tensions and Fed Policy Uncertainty
U.S. Treasury yields rose on Wednesday as investors weighed the geopolitical scenario and the latest economic data.
The yield on the 10-year Treasury increased to 4.424%. The 2-year Treasury yield reached 4.30%.
Yields and prices move in opposite directions, with one basis point representing 0.01%.
Investors took note of the latest developments in the Russia-Ukraine dispute, which has seen tensions between the United States and Russia rise in recent days. On Wednesday, the United States closed its embassy in Kyiv, Ukraine’s capital, warning of a “potential significant air attack.”
Following Ukraine’s first use of U.S.-made long-range ballistic missiles to threaten Russian territory, Russian President Vladimir Putin revised the country’s nuclear strategy on Tuesday. He reduced the threshold for a nuclear strike.
https://twitter.com/CNBC/status/1859147880558129216
Uncertainty Over Trump’s Treasury Nomination and Fed Policy Drives Market Pressure
However, the market is under pressure due to uncertainties surrounding Trump’s nomination for US Treasury Secretary. According to persons familiar with the situation, Trump’s transition team is considering appointing Kevin Warsh, a former Federal Reserve official, as Treasury secretary and hedge fund manager Scott Bessent as director of the White House National Economic Council.
According to interest-rate swaps, traders believe the Fed will either remain unchanged or decrease rates by another quarter-point at its policy meeting on December 18.
Investors predict the central bank’s benchmark borrowing costs to fall to around 3.8% by the end of next year, or about 75 basis points lower than they are now. Fed Chairman Jerome Powell stated last week that the central bank is not “in a hurry” to cut interest rates.
Bonds have been falling for much of the past two months, as stronger-than-expected economic data caused speculators to reduce expectations for Fed rate reduction. The selloff has mainly continued since the Nov. 5 election, when Trump’s victory raised fears about how the president-elect’s promises of higher tariffs, lower taxes, and looser regulations will affect rates.
This week, the 10-year Treasury yield is on the rise, currently on its upward track at 4.42% with a 0.098% increase. The rise began on Friday after a batch of strong economic data further dampened hopes of a Fed rate cut next month, briefly pushing the yield to 4.5%.
Economic Data and Fed Outlook in Focus
Investors also considered the most recent economic data, which showed that new housing starts fell short of estimates in October and building permits fell month over month, according to data released Tuesday.
Existing house sales statistics will be released on Thursday which will provide additional insights into the housing market.
Later this week, investors will be monitoring for S&P Global’s October flash purchasing managers’ index data for the services and manufacturing sectors. Several Federal Reserve officials are also scheduled to speak during the week, and investors will be looking for signals about the economic and monetary policy outlook.
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