Treasury bond yields stabilized as investors took a wait-and-see attitude ahead of the announcement of the results of the Fed meeting.
The yield on 5-year Treasury bonds fell by 0.4 basis points, reaching 4.719%, while the yield on 30-year bonds was 4.792% (+0.3 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 1.1 basis points to 5.035%, while the yield on 10-year bonds increased to 4.69% (+0.6 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 35 basis points.
Consensus estimates suggest that the Fed will not make changes to monetary policy parameters. At the same time, market participants hope to receive new clues about the timing of interest rate cuts. Uncertainty has grown in recent weeks about the possibility, number and timing of interest rate cuts this year, while economic data has suggested resilience from the economy and sticky inflation. Traders now expect a rate cut of only 29 basis points by December, compared with more than 170 basis points at the beginning of the year. According to the CME FedWatch Tool, markets see a 9.5% probability of a 25 basis point rate cut at the Fed meeting in June, a 22.5% probability of a rate cut in July, and a 45.5% probability of monetary policy easing in September.
In addition to the Fed meeting, investors will also pay attention to data on the US labor market - the ADP employment report for April will be released at 12:15 GMT, and the JOLTs job openings report for March at 14:00 GMT. These come ahead of the April nonfarm payrolls report on Friday.