TREASURIES-Yields rise as investors wait on Fed decision
Treasury yields rose on Tuesday as investors waited on the conclusion of the Federal Reserve’s two-day meeting on Wednesday for any clues on when the
U.S. central bank is next likely to raise interest rates. The Fed is expected to keep interest rates steady after hiking them in March, but investors were waiting to see if the
central bank may indicate that a new increase is likely at its June meeting. Futures traders are pricing in a 71 percent chance of a rate hike in June, according to the CME Group’s FedWatch Tool. Investors are also looking for details on how and when the Fed may begin reducing the size of its bond holdings. “I think that the market is anticipating that they leave the
door open for a June move and maybe some hints about what’s going on with the balance sheet,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. Benchmark 10-year notes were last down 3/32 in price to yield 2.34 percent, up from 2.33 percent late on Monday.
China’s $11 Trillion Economy and Markets Are in a Tug of War
China’s run of solid economic indicators proved little consolation for its shaky financial markets in April. The dichotomy stems from a shift in the leadership’s focus toward reducing leverage — one that’s set to determine whether growth joins asset prices in heading down. Economists are practically unanimous in saying that reduced debt loads would be good for China’s longer-term health. The big unknown is whether officials can manage that without a dose of short-term pain. As UBS Group AG analysts put it in a note last week: if authorities’ initiatives are “not managed well, it could lead to a rise in credit events, excessive liquidity tightening, faster-than-intended slowdown of credit growth, and greater market volatility.” What started in the fall of 2016 as a tightening in money-market liquidity has intensified to a broader attack by policy makers on the shadow-banking system, where patchy regulation has allowed investors to make leveraged bets. When President Xi Jinping last week warned top officials to crack down on financial risks, the benchmark equities index at one point gave up gains for the year, while bonds suffered their biggest tumble of 2017.
German manufacturing growth near six-year high in April: PMI
German manufacturing activity held near a six-year high at the start of the second quarter, a survey showed on Tuesday, suggesting factories will continue to support economic growth in Europe’s biggest economy. Markit’s Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, inched down to 58.2 in April from March’s 71-month high of 58.3. The index has now held above the 50 line separating growth from contraction for 29 months running, the second-longest run of growth in activity in the 21-year history of the survey. The final reading was unchanged from a flash estimate published last month. “Although growth of output, new orders and employment all eased, this was mostly offset by more evidence of supply chain pressures as input delivery times lengthened to the greatest extent in six years,” IHS Markit economist Trevor Balchin said.