The one-month Treasury bill rate led an advance in short-dated yields Monday morning, as President Joe Biden and House Speaker Kevin McCarthy were set to resume debt-ceiling negotiations.
What’s happening
-
The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.328%
advanced to 4.303% from 4.287% on Friday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.702%
was 3.692%, little changed from 3.690% as of Friday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.946%
was 3.937%, down slightly from 3.946% late Friday.
What’s driving markets
The rate on one-month Treasury bills
TMUBMUSD01M,
which provides a gauge of the market’s debt-ceiling stress, jumped to 5.598% as of 9:10 a.m. Eastern time, up 8.5 basis points from Friday’s close of 5.513%, according to Tradeweb. That’s near a multiyear high of 5.68% reached earlier this month.
Investors and traders sold off the one-month T-bill, given concern about whether the government could pay its obligations after June 1. The primary focus for financial markets continues to be the developments surrounding the U.S. debt-ceiling negotiations, which were set to resume on Monday.
Meanwhile, St. Louis Fed President James Bullard said on Monday that he would like two more quarter-of-a-percentage-point interest-rate hikes this year to put downward pressure on inflation. His colleague, Minneapolis Fed President Neel Kashkari, said in an interview with The Wall Street Journal published Sunday that he’s open to pausing rate hikes at the Fed’s next meeting.
In an interview with CNBC on Monday morning, Kashkari, who is a 2023 voting member of the rate-setting Federal Open Market Committee, said: “Important to me is not signaling that we’re done. If we were to skip in June, that does not mean that we are done with our tightening cycle.”
Markets are pricing in a 76.7% probability that the Fed will leave interest rates unchanged between a range of 5%-5.25% on June 14, according to the CME FedWatch Tool. Fed funds futures traders also see a 23.3% chance of a quarter-point hike next month, according to 30-day Fed Funds futures.
The minutes of the Fed’s May 2-3 meeting will be released on Wednesday.
What analysts are saying
“Casting a shadow over monetary policy and the markets is the need to raise the debt limit to avoid a default on Treasurys at some point in June with President Biden set to meet today with House Speaker McCarthy,” said Scott Buchta, head of fixed-income strategy for Brean Capital.
“All of this has the making of a market reacting to data, Fedspeak, and tape bombs on the debt ceiling,” with “regional bank stress simmering in the background,” Buchta wrote in a note.
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