Ahead of the Federal Reserve’s policy meeting, U.S. Treasury yields dipped slightly, with 10-year yields standing at 4.8435% and 2-year yields at 5.0249% on Tuesday. The markets are expecting the Fed to maintain current rates, with indications about future rate trajectories anticipated from Chairman Powell’s post-meeting press conference and Fed guidance.
Policymakers are arguing against further hikes due to tighter financial conditions linked to higher yields and an easing economy. Investors are closely scrutinizing the U.S. Treasury’s plan to borrow $776 billion in the final quarter of 2023, which is lower than projected.
Key economic indicators such as October’s consumer confidence report, August’s S&P/Case-Shiller home price index, and the upcoming October jobs report indicating labor market conditions are under close watch by investors. The Bank of Japan maintains interest rates while making its yield curve control policy more flexible. Euro zone inflation and GDP figures are also on the horizon.
The government’s large deficits, particularly the $1.7 trillion for fiscal 2023, are causing concern amidst robust economic growth. The Treasury’s fourth-quarter borrowing estimate is $776 billion, with a first-quarter 2024 estimate of $816 billion, shaped by advice from the Treasury Borrowing Advisory Committee.
Investors are also keeping a close eye on recent auctions such as the $38 billion sale of 7-year notes and a $23 billion auction of 30-year bonds. These auctions, along with the Treasury’s borrowing plans, are crucial in understanding the U.S.’s fiscal trajectory amidst rising Treasury yields.
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