The U.S. central bank’s decision to keep interest rates unchanged for the fifth consecutive time in March has sparked uncertainty among investors, leading to fluctuations in Treasury yields on Tuesday. Traders reconsidered the possibility of the Federal Reserve cutting rates in June as they saw the benchmark rate climb nearly 7 basis points to 4.397%, reaching its highest level in two weeks and close to peak levels of the year. In contrast, the 2-year Treasury note yield rose nearly 1 basis point to 4.726%.
The unexpected growth in U.S. manufacturing was seen as reducing the likelihood of significant Fed rate cuts, according to Dutch bank ING, after news that manufacturing in the U.S. expanded for the first time in 17 months, according to data released by the Institute for Supply Management on Monday. The ISM manufacturing index increased to 50.3, up from 47.8 in February and surpassing the 48.1 Dow Jones consensus estimate. A reading above 50 indicates growth, with the index measuring the percentage of companies reporting expansion versus contraction.
AmeriVet Securities’ head of U.S. rates strategy, Gregory Faranello, noted that while market pricing currently indicates anticipation of three cuts, with a preference for a June initiation, pending further data updates.” He also stated that “the Fed is taking a cautious approach and data is aligning with their stance.”
Despite these developments, it is worth noting that yields and prices move in opposite directions, with one basis point equivalent to 0
