Bond Yields Gain on Bets that the Fed is in No Rush to Ease – US Market Wrap

Treasuries fell as Wall Street grappled with mixed economic data, with traders betting the Federal Reserve will signal patience before deciding whether to cut rates this year.

Bond losses were led by shorter maturities as data showed personal spending exceeded expectations, despite the Fed’s preferred gauge of underlying inflation slowing to a nearly three-year low. With policymakers signaling that they want to see long-term signs of cooling before lowering borrowing costs, the figures only confirmed bets that a March pivot remains elusive.

Investors have not abandoned their bets on interest rate cuts in the first quarter, but they have fully priced in a Fed move in May. Of course, all of this will depend on the next few economic reports, with the effects of shipping disruptions yet to be seen. When Jerome Powell and his colleagues meet next week, traders will be waiting to see how all of this plays out in terms of risk balance.

Two-year US yields exceeded 4.35%. The S&P 500 fluctuated despite recording its third weekly gain in a row. The Nasdaq 100 fell as disappointing forecasts from Intel and KLA weighed on chipmakers. Oil rose to a two-month high after a fuel tanker operated by trading giant Trafigura Group was hit by a missile as it transited the Red Sea, highlighting the geopolitical risks to crude supplies.

The Federal Open Market Committee is widely expected to keep interest rates unchanged for the fourth time in a row when it meets in Washington on January 30th and 31st. The real focus will be on what comes next, at the March meeting and beyond.