Investors weigh in on retail sales data and seek updates to plan to end bond-buying program
Investors turned their attention to new retail sales data ahead of a two-day Federal Reserve policy meeting on Wednesday that boosted U.S. government bond yields.
In a recent trade, the 10-year U.S. Treasury yield was 1,437% on Tuesday, compared to 1,445%, according to Tradeweb.
Retail sales of U.S. retailers, online retailers and restaurants rose 0.3 percent in November from a month earlier, according to the Commerce Department.
That’s lower than the Wall Street Journal’s 0.8 percent growth forecast for economists surveyed. Sales other than cars were also lower than expected. In general, weak economic information lowers investors’ expectations of Fed growth, inflation and short-term interest rate increases, and increases Treasury demand.
Yields recovered quickly after a report accompanied by better-than-expected data on New York State production. The Fed’s meeting was also fierce on trade, prompting investors to look at new economic data.
Investors are looking for a number of major outcomes from the meeting. This includes an update to the central bank’s plan to end the bond-buying program launched last year to improve market operations and stimulate the economy after the outbreak of the coronavirus epidemic.
The Fed is currently cutting its purchases by $ 10 billion for Treasurys and $ 5 billion for mortgage-backed securities. But after Fed Chairman Jerome Powell said it was possible to do so at a recent Senate hearing, many investors are hoping the Fed will announce a halt sooner.
Investors are also ready to change the interest rate forecast of officials. Many expect the majority of officials to support the rate hike several times next year. Officials were evenly divided in September over whether to raise rates before 2023.
The expected turnaround in monetary tightening comes after rising inflation, which has warned many investors and economists. However, neither inflation nor interest rate growth prospects have done much to break long-term patterns and increase long-term treasury returns.
Investors sold short-term treasury in anticipation of rising interest rates next year, but the central bank continues to buy long-term bonds, believing it will not raise interest rates too high before the economy slows. stop. The release of the Omicron Covid-19 last week has weighed on economic sentiment and slowed returns.
As of Wednesday morning, investors believe that the Federal Reserve’s futures, or derivatives used by traders to bet on interest rates, have an 87% chance of raising the Fed’s interest rate by at least two-and-a-half percent. , CME Group reports that next year there is also a 62% chance of raising interest rates at least three times, or three-quarters.
“Every other day in December, the markets seemed to be waiting for a tougher meeting, and at this stage the price seems to be quite high,” NatWest Markets analysts wrote in a note to their customers.