Bond Market Update

Surprise? Maybe not.

• Treasuries are off their highs and they are also off their lows, settling in it seems to a tighter trading range in front of the 2:00 p.m. ET FOMC decision.
• There is a 98.6% probability of a 25-basis points cut to 4.25-4.50% today, according to the CME FedWatch Tool. Suffice to say, it would be a major surprise if the Fed agreed to leave the target range for the fed funds rate unchanged at 4.50-5.75%.
• Notably, the Summary of Economic Projections released at the September FOMC meeting revealed a median estimate of 100-basis points worth of rate cuts in 2025; however, the fed funds futures market has frontrun the likelihood that the Fed will be cutting less in 2025 than previously expected. As of now, the market is pricing in only two rate cuts  -- one in March and another in September -- in 2025.
• It might be a headline surprise, then, to see the Fed reduce its rate-cut outlook in the Summary of Economic Projections, but it won't be a true surprise to the market if the new estimate projects only two rate cuts.
• Yield check:
  • 2-yr: -2 bps to 4.22%
  • 3-yr: -1 bp to 4.21%
  • 5-yr: unch at 4.25%
  • 10-yr: +2 bps to 4.40%
  • 30-yr: +2 bps to 4.60%