The bond market narrative is undeniably shaped by inflation. 2023 began with inflation anxieties, but ended with a surprisingly swift deceleration, which led to out-sized hopes for large rate cuts this year.
The FOMC meeting in January 2024 marked another pivot. The Fed recognized the stickiness of inflation and emphasized the need for continued vigilance. In addition, strong US labour market data in February caused a spike in US Treasury yields, especially for short tenors. The 10-year US Treasury yield also moved higher and exceeded 4.3% in February. The strong economic data tempered expectations of an early rate cut by the Fed. The market expectation back in December of a first cut in March 2024 has moved to June 2024, and the anticipated six cuts for the entire year have been halved to three.
