In Asian trading, the 10-year Treasury yield witnessed a decline of three basis points, signaling a modest retreat following a robust surge over the past two days. Monday’s trading session saw a significant uptick in Treasury yields, with rates climbing by 14 basis points, marking the most substantial two-day increase since June 2022. The surge was propelled by strong economic data from the United States, particularly highlighted by the Institute for Supply Management’s services gauge reaching a four-month high alongside an uptick in prices. These developments reverberated through the market, especially as investors were already digesting cautious sentiments from several Fed speakers, including Jerome Powell.
The collective impact suggests a strengthening economy, providing the Federal Reserve with a longer runway to consider rate reductions. Market sentiment reflected this adjustment, with Fed swaps nearly erasing the likelihood of a rate move in March, while the probability of a cut in May also diminished. Conversely, Australian and New Zealand yields experienced an uptick, contributing to the Australian dollar’s strength following the Reserve Bank of Australia’s decision to keep the policy rate unchanged, while hinting at the possibility of future rate increases.
In currency markets, the dollar exhibited a slight weakening after reaching its highest level since November, setting a subdued tone for trading. Meanwhile, the yen demonstrated resilience against the greenback, trading just above 148 per dollar.
In Japan, annual wage negotiations have commenced earnestly, aligning with the central bank’s quest for evidence of a virtuous wage-price cycle, crucial for its potential exit from the world’s last negative rate regime.
On the policy front in the United States, Federal Reserve Bank of Minneapolis President Neel Kashkari emphasized the importance of assessing incoming data before considering easing measures, echoing sentiments expressed by his counterpart, Chicago Fed President Austan Goolsbee, who emphasized the necessity of observing further favorable inflation data.