Treasuries Pare Weekly Gain as Data Boosts March Fed Hike Bets

Updated on
  • Upbeat retail sales, PPI data fuel selloff across the curve
  • Traders pricing 31% chance Fed raises rates by March meeting

Fed, Fiscal Policy, and Unwinding the Balance Sheet

Treasuries trimmed a weekly gain as data on retail sales and producer prices showed U.S. economic growth remains intact, boosting wagers the Fed will raise interest rates by its March meeting.

The benchmark 10-year yield rose three basis points to 2.39 percent as of 4:00 p.m. New York time, this biggest increase in a week. The selloff gathered pace as volume in futures, a market dominated by fast money such as hedge funds, surged after the morning data. Traders are pricing in a 31 percent probability that the Fed raises rates by its March meeting, based on the assumption that the effective fed funds rate will trade at the middle of the new FOMC target range after the next increase, up from 28 percent Thursday.

  • There’s been “heavy fast-money selling” as well as foreign selling triggered by JPY move, Mischler Financial trader Glen Capelo says
  • Dip-buyers eventually emerged as 30-year yields topped 3 percent, included central bank buying in the long-end and domestic real money buying in the belly
  • Heading into the close, USTs were underpinned by gains for bund futures after DBRS downgraded Italy debt to BBB (high)
  • 3-month USD Libor sets at 1.0232 (+0.14bp); muted eurodollar flows on the follow
  • $13 billion of 10-year TIPS reopening next week to test market’s demand for inflation-protected securities

— With assistance by Elizabeth Stanton

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