(Bloomberg) --A renewed bout of selling hit the Treasury market, with factory data bringing little comfort on the inflation front and a handful of companies offering bonds in the run-up to the Federal Reserve decision.
As Wall Street gears up for the Fed's 10th consecutive rate hike since March of last year, several borrowers are anticipated to pile in after exiting their earnings blackouts, with
These big offerings usually represent a double-whammy for Treasuries, which tend to cheapen amid competition from new debt and as underwriters sell government notes to rate-lock the issue for corporate buyers. Another factor dragging down bond prices Monday is the stabilization in sentiment after JPMorgan Chase & Co. decided to acquire failed lender First Republic Bank.
To Krishna Guha at Evercore, trading suggests little or no spillovers from that situation, which is consistent with the notion that there's roughly no surprise here and the market would be willing to distinguish between First Republic and other financial firms.
'Clears the Decks'
"The decisive action by regulators clears the decks for the Fed to press ahead and raise rates at its May meeting," Guha noted. "Our base case is that the economy cools from here, the Fed will not hike further after May and the next move will be a cut in December."
Swap traders slightly upgraded the odds the Fed will increase its policy rate by a quarter-point Wednesday. The two-year yield climbed as much as 16 basis points to 4.16% Monday. The rate on the 10-year bond approached 3.6%. Equities posted a small gain, with traders continuing to wade through a batch of corporate results.
Stock investors holding on to hopes the Fed will cut rates in the second half could be
"If the message delivered at this meeting is more hawkish, it could provide a near-term negative surprise for equities," Wilson wrote in a note.
Andrew Brenner at NatAlliance Securities says the question investors will need to ask themselves after Powell's conference is whether there's a pause coming after Wednesday — and whether that would be a "hawkish pause or a real pause."
"The Fed will tell the markets that there is no expected lower rates coming at the end of the year, but markets will not believe them, as the Fed longer-term outlook and predictions have been awful," Brenner noted. "We still see two rate cuts by January."
Key events this week:
- US factory orders, revised durable goods, light vehicle sales, Tuesday
- US ADP payroll data, Wednesday
- Federal Reserve Chair Jerome Powell holds news conference following the central bank's interest-rate decision, Wednesday
- US initial jobless claims, international trade in goods and services, Thursday
- European Central Bank rate decision, followed by ECB President Christine Lagarde's news conference, Thursday
- US unemployment, non-farm payrolls, Friday
- St. Louis Fed President James Bullard at Economic Club of Minneapolis, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.2% as of 2:28 p.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.4% to $1.0975
- The British pound fell 0.6% to $1.2495
- The Japanese yen fell 0.9% to 137.46 per dollar
Cryptocurrencies
- Bitcoin fell 3.9% to $28,213.94
- Ether fell 3% to $1,835.81
Bonds
- The yield on 10-year Treasuries advanced 14 basis points to 3.57%
- Germany's 10-year yield was little changed at 2.31%
- Britain's 10-year yield was little changed at 3.72%
Commodities
- West Texas Intermediate crude fell 1.5% to $75.62 a barrel
- Gold futures fell 0.4% to $1,991.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Michael Mackenzie, Vildana Hajric, Carly Wanna and Isabelle Lee.
© 2023 Bloomberg L.P.
