Bond traders have adjusted their expectations for Federal Reserve rate cuts this year, incorporating a slightly larger probability following a series of mixed US economic indicators. Despite robust economic growth and a gradual easing of price pressures, Treasury yields experienced a decline of at least four basis points across various maturities. This adjustment, however, did not fully offset the increases witnessed on Wednesday, driven by stronger-than-anticipated economic activity gauges for January. The overall amount of rate cuts priced in for the year inched higher by a comparable margin.
The extensive set of US data released on Thursday encompassed the initial estimate of fourth-quarter economic growth, inflation rates, and weekly jobless claims, revealing signs of easing in the labor market.
Matthew Luzzetti, Chief US Economist at Deutsche Bank AG, expressed on Bloomberg Television, “There’s improving prospects for a soft landing here.” With inflation showing signs of cooling, Luzzetti suggested that the Fed “should be cutting rates by the middle of this year.”
Swap contracts, which reflect expectations for Fed interest-rate movements, continue to fully price in an initial move in May. Additionally, there is an uptick in the expected total rate cuts for the year to 138 basis points.
