U.S. 10-year Treasury yields hit highest since April 2014 on extended sell-off ahead of FOMC’s policy decision

The U.S. 10-year Treasury yields reached to its highest since April 2014 Monday as markets engaged in massive selling across the board ahead of a host of events scheduled for this week – President Donald Trump is scheduled to deliver a keynote speech on January 31 by 02:00GMT and the ADP non-farm employment due on the same day by 13:15GMT. However, of utmost importance is the Federal Open Market Committee’s (FOMC) monetary policy meeting, due to be concluded on Wednesday by 19:00GMT.

The yield on the benchmark 10-year Treasuries jumped 6 basis points to 2.72 percent, the super-long 30-year bond yields surged 5 basis points to 2.96 percent and the yield on the short-term 2-year traded nearly 4 basis points higher at 2.15 percent by 11:05GMT.

All eyes will be on Wednesday’s conclusion of the FOMC meeting, which will be the last to be chaired by Janet Yellen. While the latest CPI figures were encouraging, suggesting that some of the transitory factors that kept inflation low in 2017 have started to diminish, we do not expect any change to policy this time around. However, the policy statement will be watched for hints to a possible tightening in March, when a new set of economic forecasts will be published. Data-wise, the latest employment report is due out on Friday.

After a sub-150k increase in non-farm payrolls in December, our US chief economist Mike Moran currently forecasts a recovery to 170k in January, a touch below the consensus and also below the Q4 average of 204k. While the impact of some harsh winter weather represents a source of uncertainty, the other key labour market indicators are expected to remain broadly stable: the unemployment rate should move sideways for a fourth consecutive month, at 4.1 percent, while average hourly earnings growth is expected to inch only slightly higher to 2.6 percent y/y, a pace in line with its average for 2017.

Among other notable data releases in the coming week, today brings the latest personal income and consumption data for December, including the personal consumption deflators, the Fed’s preferred measure of inflation – CPI data suggest that the core PCE deflator will rise by 0.2 percent m/m, above the average rate for the first eleven months of the year. The Conference Board and the University of Michigan consumer sentiment indices are due tomorrow and Friday respectively, while Wednesday and Thursday will bring the Chicago Purchasing Managers’ Index and manufacturing ISMs alongside Q4 labor productivity and construction spending figures. 

Meanwhile, the S&P 500 Futures traded 0.28 percent lower at 2,866.50 by 11:10GMT, while at 11:00GMT, the FxWirePro's Hourly Dollar Strength Index remained neutral at -47.31 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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