Treasuries Slump as Traders Push Fed Rate-Cut Bets Out to July - Tools for Investors | News
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Treasuries Slump as Traders Push Fed Rate-Cut Bets Out to July


(Bloomberg) — US Treasuries declined, leaving 10-year notes on track for their worst week this year, as traders increasingly dialed back bets on the pace and scope of monetary easing expected from the Federal Reserve this year.

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Traders in interest-rate swaps pushed bets on the timing of the full first, quarter-point rate cut from the Fed to the central bank’s July meeting. Yields rose on the day on most maturities, leaving both two- and 10-year rates more than 20 basis points higher on the week. For the 10-year, it’s the biggest weekly leap since October.

The selloff caps a week in which reports showed inflation remains stubbornly sticky, intensifying the debate around the degree of easing officials will signal after their policy meeting next week. Fed officials last released quarterly forecasts in December, anticipating three quarter-point cuts in 2024, and they’re set to release an update of those projections — known as the dot plot — on March 20.

“The biggest risk for next week is that we all look at the 2024 dot, and it says 50, not 75 basis points worth of rate cuts, and that is what triggers a more dramatic bear flattening,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

Read more: Bond Traders Prep for Dot Plot, With Three Cuts in Question

Swaps pricing Friday also showed less than 75 basis points of easing — or three quarter-point cuts — priced by December of this year.

“We’ve been in the no-rush-to-ease camp,” Ed Yardeni, president and founder of Yardeni Research, wrote in a Friday note. “We are still there and won’t be surprised if the Fed doesn’t cut this year at all.”

On Friday, US economists at JPMorgan Chase & Co. updated their 2024 forecast for monetary easing from the Fed,, saying they now expect 75 basis points of cuts this year versus 125 previously.

The backup in yields — and persistent inflationary pressure — is also leading some Wall Street strategists to question just how low the Fed’s long-run, or terminal, policy rate will ultimately go.

Elsa Lignos, RBC’s global head of foreign-exchange strategy, said on Bloomberg Television on Friday that the bank has lifted its forecast for the Fed’s terminal monetary setting from 3.75% to 4%, even as it continues to expect three rate cuts from the central bank in 2024.

“I think there is a difference between the US and the rest of the world, and I come back to that notion of productivity growth,” Lignos said. “It does suggest the neutral rate is higher in the US than it would be elsewhere if productivity growth is that much stronger.”

–With assistance from Lisa Abramowicz, Jonathan Ferro, Annmarie Hordern, Liz Capo McCormick and Edward Bolingbroke.

(Updates to add JPM Fed call.)

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