Treasury yields pull back as big economic data releases come into view

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U.S. Treasury yields were lower on Wednesday morning as investors brace themselves for two key pieces of economic data in the second half of the week.

At around 3:30 a.m. ET, the yield on the benchmark 10-year Treasury note was down by around 3.7 basis points at 4.1050% and the yield on the 30-year Treasury bond slipped 3.7 basis points to 4.3418%.

Yields move inversely to prices.

Two significant pieces of economic data are on the slate this week: a preliminary fourth-quarter gross domestic product growth figure is due on Thursday, followed by the Commerce Department’s closely watched personal consumption expenditures price index for December on Friday.

Both data points will inform the Federal Reserve as it maps out when and by how much to begin cutting interest rates, which will be a key factor in determining the path of markets and the economy this year.

Focus on rates is likely to ramp up over the coming week, according to Deutsche Bank’s Head of Global Economics Jim Reid, with the Bank of Canada announcing a policy decision on Wednesday, followed by the European Central Bank on Thursday and the Fed on Jan. 31.

“For the Fed, the chance of a cut by March fell to just 38% at the intraday low yesterday, but this rose to 49% at the close, with most of this rise appearing to follow some dovish interview comments by former St Louis Fed President Bullard,” Reid said in an email Wednesday.

“When it comes to 2024 as a whole, 137bps of cuts are now priced in by the December meeting, up from the near-two-month low of 133bps on Monday. So that’s still a sizeable amount of cuts expected this year, particularly in a non-recession scenario, but a notable shift back since the intraday peak on January 12, when 170bps of cuts were priced in for 2024.”

This month’s flash S&P Global flash PMI (purchasing managers’ index) readings, often seen as a reliable gauge of economic activity, are due at 9:45 a.m. ET on Wednesday.

Auctions will be held for $60 billion of 17-week Treasury bills, $61 billion of 5-year notes and $28 billion of 2-year FRNs (floating-rate notes).