The U.S. Treasury were trading modestly weak on Tuesday as investors cooled on safe-haven assets amid gains in riskier assets including stocks and oil. Also, investors pay close attention to the next weeks FOMC meeting and Federal Reserve Chair Janet Yellen speech in an attempt to estimate the Fed's likely next step to raise interest rate.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, moved tad up 0.38 pct to 1.909 pct and the yield on the 2-year Treasury bond rose 0.58 pct to 0.853 pct by 1250 GMT.
The U.S. Federal Reserve policymakers meet on April 26-27 and markets largely expect that interest rates will be kept steady with a slim possibility of a surprise hike. Focus will be on the press statement and whether there is a shift across the Fed members to a more hawkish stance. Even subtle changes in the wording of its statement will tell us a lot about the probability of a June hike. Recent comments have been far more hawkish than the market is currently pricing in on rates.
“I don't think they can pull off a June hike without triggering another round of volatility, and they don't want that because the selloff in January and February left a deep scar. The FOMC can't go too hawkish overnight because markets aren't pricing in anything close to that.” said Aneta Markowska, chief U.S. economist at Societe Generale.
On the other hand, investors did not react to the weak March durable goods, which increased 0.8 pct m/m, lower than the market expectation of 1.8 pct rise, from down 3.0 pct (revised to -3.1 pct). Durable goods ex-transportation decreased -0.5% m/m, against markets expectations of +0.5 pct m/m, from down 1.3 pct in February. Moreover, Philly Fed April non-manufacturing index stood at 13.5, as compared to 13.9 in March.
The United States Treasury bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Federal Reserve's target. Today, crude oil prices rose by tracking weak greenback and stream on fresh liquidity into the market. Meanwhile, Crude oil prices continue to rover around 5-month high. The International benchmark Brent futures rose 1.58 pct to $45.02 and West Texas Intermediate (WTI) climbed 0.96 pct to $43.05 by 1250 GMT.
Data have been mixed since the previous meeting. The labour market data have been strong. Inflation has fallen back somewhat, while market based inflation expectations have risen. GDP was revised up to 1.4% (saar) for Q4, but growth has likely slowed in Q1. Business confidence has improved, while consumer demand has slowed. Financial markets volatility has abated, and commodity prices have risen. The trade-weighted USD has weakened.
Some broad macroeconomic indicators support the view that the economy is continuing to expand, albeit at a slower pace than in 2014 and 2015. However, weakness in retail sales and international trade, as well as concern about China's economy, are among reasons Fed Chair Janet Yellen will stay cautious about further rate hikes before the second half of the year. Fed may need more tangible evidence of higher inflation and growth before it makes any move towards normal levels of interest rates.
Markets now shift focus to a the greater flow of data in the week ahead, highlighted by the April FOMC statement on Wednesday and advance 1Q16 GDP data on Thursday. Meanwhile, S&P 500 Futures rose 0.19 pct to 2,087.25 by 1250 GMT.
The material has been provided by InstaForex Company – www.instaforex.com