U.S. Treasury bonds mixed on quite week ahead

The U.S Treasury bonds were trading mixed on Wednesday as markets receive no more important data and Federal Reserve Presidents speeches this week; expect existing home sales and weekly inventories data from the EIA. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, moved down 0.07 pct to 1.782 pct and the yield on the 2-year Treasury bond climbed 1.11 pct to 0.765 pct by 1235 GMT.

Yesterday, the Boston Federal Reserve President Eric Rosengren (voter in 2016) said that he sees more rate hikes than predicted by pessimistic investors and market prediction of 1/4-pct rate hike per year unjustified. Said preferred inflation measure is much closer to target, as compared to last year and United States economy is fundamentally sound. Said it is appropriate to probe how low unemployment can go and the Fed should not pause policy so long as to raise risk of recession. Said market-implied rate path would risk overheating economy and started to see wages pick up in some markets. The Fed will be raising rates faster than the markets think, he added.

Today, Kuwaiti oil and gas labourers finished a 3-day strike that had briefly cut the OPEC crude output to half, which drag oil prices down. On Sunday, the negotiations between Petroleum Exporting Countries (OPEC) and Russia failed to reach an agreement in the Doha round of talks to strike a deal on oil output freeze. The International benchmark for crude oil prices, Brent futures fell 1.48 pct to $43.39, while West Texas Intermediate crude oil dipped 1.92 pct to $40.29 by 1235 GMT.

After wave of disappointing data last week, investors may be expecting no more hikes from Federal Reserve in its up-coming policy meeting. Nevertheless, we continue to see a more careful, wait and see approach to continue being employed by the Fed likely to materialize in higher rates come the June FOMC meeting (still delivering only 50bps of additional tightening over the course of 2016).

Also, the Federal Reserve Chair Yellen said that there is a great deal of uncertainty over interest rate hike and therefore, she favours a cautious approach.

Lastly, the investors now focus on to a lighter flow of data this week, including housing starts/building permits, Philadelphia Fed manufacturing activity and Markit US manufacturing PMI towards the end of the week. Markets also receive a 5-Year TIPS auction on Thursday. Moreover, investors will also look forward to next week’s FOMC meeting on Wednesday, 27th April and Q1 GDP figure on Thursday, 28th April (1230 GMT).