Bond Market Update

Re-thinking rate cut timing

• The Treasury market continues to sit tight with solid gains following this morning's relatively underwhelming economic news. There wasn't much growth enthusiasm emanating from the retail sales and industrial production reports. The 0.5% gain in industrial production was driven solely by the output of utilities, which were cranking to meet demand for heating. On top of that, there was no disinflation to be found in the January Import and Export Price Indexes.
• Yields have come down across the curve in response to the data, which resonated with the fed funds futures market.
• According to the CME FedWatch Tool, it is basically a coin toss now as to whether the Fed will cut rates by 25 basis points at its June FOMC meeting. Following the CPI report on Wednesday, that expectation had been pushed out to the September/October meetings. July, with a 62.4% probability of a 25 basis points cut, is back to the lead position when it comes to the next rate cut.
• Yield check:
  • 2-yr: -7 bps to 4.24%
  • 3-yr: -8 bps to 4.25%
  • 5-yr: -9 bps to 4.30%
  • 10-yr: -8 bps to 4.45%
  • 30-yr: -7 bps to 4.66%