On Tuesday, the 10-year Treasury note yield saw an increase, building on gains from the previous session. Traders were reevaluating the possibility of the Federal Reserve cutting rates in June. The benchmark rate rose almost 7 basis points to 4.397%, reaching its highest level since November 28. Yields and prices move in opposite directions, with one basis point equaling 0.01%.
The market reacted following data released by the Institute for Supply Management on Monday showing that manufacturing in the U.S. expanded for the first time in 17 months. The ISM manufacturing index rose to 50.3, surpassing the 47.8 figure from February and the 48.1 Dow Jones consensus estimate. Any number above 50 indicates growth, which was seen as a positive sign by investors who had been cautious about significant Fed rate cuts moving forward due to concerns about inflation and global economic conditions.
Based on fed futures trading, the likelihood of a rate cut in June has decreased to around 58.8%, compared to about 70% a week prior. This unexpected uptick in U.S. manufacturing growth has led investors to be more cautious about the possibility of significant Fed rate cuts moving forward.
Market analysis suggests that the Fed is taking a conservative approach and waiting for further data before making any decisions about interest rates or potential rate cuts in June or beyond.
While market pricing currently anticipates three rate cuts with a possible start in June, it remains contingent on economic data trends and ongoing inflationary pressures that could impact overall market performance and investor confidence going forward.
In summary, while investors had initially been optimistic about significant Fed rate cuts given recent weaknesses in U.S manufacturing activity, this unexpected uptick has led them to be more cautious about potential interest rate decisions going forward as they wait for further data to inform their investment strategies and monitor broader economic conditions that could impact overall market performance over time.
