INTEREST RATES
December U.S. Treasury bond futures declined to the lowest level since November 2023.
The yield on the 10-year U.S. Treasury note remained near 4.61% on Tuesday, and is close to a seven-month high as markets continue to assess the extent of interest rate cuts the Federal Reserve may implement in 2025.
Recent declines in futures, especially at the long end of the yield curve, are due to the hawkish statement from the Federal Open Market Committee meeting on December 18.
The U.S. Treasury will auction five-year notes today.
There is a 91% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 4.25% – 4.50% at its January 29, 2025 policy meeting, and there is a 9% chance of a 25 basis point reduction.
It also appears that the FOMC will keep policies on hold at the March 19, 2025 meeting as well.
The U.S. economy is likely to perform well, which may cause the FOMC to be slower to add accommodation in 2025 than the consensus view.
STOCK INDEX FUTURES
Stock index futures are mostly higher.
The 9:00 central time December Richmond Federal Reserve manufacturing index is expected to be -8.0.
Investors are closely watching the Federal Reserve’s 2025 policy outlook, focusing on the likelihood of fewer rate cuts. This bearish influence is likely to be offset by prospects of the U.S. economy growing faster than the consensus view.
CURRENCIES
The U.S. dollar Index is higher and remains in a four-day congestion pattern. The temporary avoidance of a government shutdown has bolstered optimism about the U.S. economy.
The fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely.
The fundamentals and technicals remain bearish for the euro currency and the British pound, and lower prices are likely.
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