US Treasury bond yields are showing a moderate increase, while investors are preparing for the Fed meeting and are monitoring the development of geopolitical tensions.
The yield on 10-year Treasury bonds rose by 6.1 basis points, reaching 1.796%, while the yield on 30-year bonds was 2.138% (+5.3 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, rose by 4.0 basis points to 1.027%.
A two-day meeting of Fed policymakers starts today. Markets fear that the Fed's statements may turn out to be “more hawkish” than expected, as annual inflation in the US rose to the highest level in almost 40 years. This has given rise to speculation that strong inflation could force the Fed to raise rates as early as this week, which, however, seems unlikely. According to the CME FedWatch Tool, the probability of the first rate hike in the US this week rose to 5.6% compared with 3.7% a week earlier. In general, most market participants expect a 0.25% rate hike next month and three more increases by the end of the year.
Meanwhile, investors expect that in the coming months, the Fed will end its asset purchase program, and around the middle of the year will begin to reduce its balance sheet. In view of this, the press conference of Fed Chairman Jerome Powell will be carefully analyzed in search of clues regarding the timing of the reduction of the balance sheet.
As for the US data, today at 14:00 GMT S&P/Case-Shiller Home Price Indices for November will be released (the index growth is expected to slow to 18% per annum from 18.4% per annum in October). Meanwhile, at 15:00 GMT, the consumer confidence indicator for January will be published. According to forecasts, the index fell to 111.8 from 115.8 in December.