Treasury yields post biggest weekly declines in months as next Fed meeting looms

By Vivien Lou Chen and Steve Goldstein

Two-, 10- and 30-year Treasury yields ended the New York session higher on Friday but saw their biggest weekly declines in at least three months as traders weighed the possibility of policymakers reversing rate hikes aggressive by the end of the year.

What is happening

What drives the markets?

Data released on Friday showed that US inflation is still going strong. A measure of the September PCE price index that excludes food and energy price volatility rose 0.5%, in line with Wall Street expectations. The PCE is considered the Fed’s preferred inflation indicator. Despite rising inflation, traders continued to price in the possibility that the Federal Reserve will soon begin to slow the pace of its interest rate hikes.

Fed funds futures traders on Friday priced in a 15.5% chance that policymakers would surprise markets next Wednesday with a lower-than-expected rate hike of 50 basis points, despite an 84% chance. 5% of another 75 basis point move. Traders see a more than 50% implied chance of a 50 basis point move in December, according to CME tool FedWatch. In other data, consumer sentiment improved slightly in October, according to a gauge from the University of Michigan, and a decline in pending home sales accelerated in September.

What analysts say

“The market is priced for a 75 basis point rise” at the November FOMC meeting “so the reaction will depend on the message in the press release and the press conference. Investors will focus on any hint of a potential deceleration pace of increases,” said a team of strategists at TD Securities.

– Vivien Lou Chen


(END) Dow Jones Newswire

10-28-22 1620ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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