OPINION
Market Rating Before FOMC MeetingJan 31
Upcoming Fed meeting supports US Treasuries
The US Department of Labor on Thursday released inflation data. Accordingly, the consumer price index (CPI) in the United States increased by 0.8 percent in February compared to the previous month and registered as 7.9 percent year-over-year.
The all items index rose 7.9 percent for the 12 months ending February. The all items less food and energy index rose 6.4 percent, the largest 12-month change since the period ending August 1982. The energy index rose 25.6 percent over the last year. And the food index increased 7.9 percent, the largest 12-month increase since the period ending July 1981.
As a result, consumer inflation has become a significant factor reflecting the upcoming Fed meeting expectations in to the prices. While the effects of the Russia –Ukraine crisis on the US economy remain uncertain, no aggressive tightening is expected from the Fed. However, the increasing inflationary setting is putting pressure on the Committee to raise interest rates by 25 basis points in the context of normalization of monetary policy in accordance with the guidance issued in January. As a matter of fact, the expectation that the Fed will start its first rate hike in March continues to have an effect on the debt market.
Long-term US treasury yields, which fell to a 1.5-month low as a result of the safe-haven asset purchases started after the Ukraine crisis, started to be priced in accordance with the Fed rate hike expectations. US 10-year treasury market rose to its highest level since July 2019 with 2.067 percent today on strong sales starting from 1.68 percent it was priced at, on the first trading day of March.
On the other hand, 30-year treasury yields reached their highest level since May 2021 with 2.40 percent, while 2-year treasuries, which have the most flexible response to the Fed's rate hikes, exceeded the levels before pandemic by reaching 1.76 percent.
At the current point, the dollar is affected by the rise in the cost of debt and there is a wave of sales in the markets, mainly in the safe haven assets. In particular, the leader of the precious metals group, Gold, lost 1.4 percent from 1988 to ~1960, while silver, which opened at 25.88, hit ~25.41.
Of course, it is not possible for interest yield to reach positive figures in a short period of time. However, thanks to the purchases of the dollar, which will diverge from the developed country currencies as a result of the tightening policy of the Federal Reserve, dollar index tested 99.40, the highest level it has seen since May 2020, and is now around 98.90.
The all items index rose 7.9 percent for the 12 months ending February. The all items less food and energy index rose 6.4 percent, the largest 12-month change since the period ending August 1982. The energy index rose 25.6 percent over the last year. And the food index increased 7.9 percent, the largest 12-month increase since the period ending July 1981.
As a result, consumer inflation has become a significant factor reflecting the upcoming Fed meeting expectations in to the prices. While the effects of the Russia –Ukraine crisis on the US economy remain uncertain, no aggressive tightening is expected from the Fed. However, the increasing inflationary setting is putting pressure on the Committee to raise interest rates by 25 basis points in the context of normalization of monetary policy in accordance with the guidance issued in January. As a matter of fact, the expectation that the Fed will start its first rate hike in March continues to have an effect on the debt market.
Long-term US treasury yields, which fell to a 1.5-month low as a result of the safe-haven asset purchases started after the Ukraine crisis, started to be priced in accordance with the Fed rate hike expectations. US 10-year treasury market rose to its highest level since July 2019 with 2.067 percent today on strong sales starting from 1.68 percent it was priced at, on the first trading day of March.
On the other hand, 30-year treasury yields reached their highest level since May 2021 with 2.40 percent, while 2-year treasuries, which have the most flexible response to the Fed's rate hikes, exceeded the levels before pandemic by reaching 1.76 percent.
At the current point, the dollar is affected by the rise in the cost of debt and there is a wave of sales in the markets, mainly in the safe haven assets. In particular, the leader of the precious metals group, Gold, lost 1.4 percent from 1988 to ~1960, while silver, which opened at 25.88, hit ~25.41.
Of course, it is not possible for interest yield to reach positive figures in a short period of time. However, thanks to the purchases of the dollar, which will diverge from the developed country currencies as a result of the tightening policy of the Federal Reserve, dollar index tested 99.40, the highest level it has seen since May 2020, and is now around 98.90.
