Fed’s Cautious Approach to Rates: U.S. Manufacturing Boosts 10-Year Treasury Note Yield

The Federal Reserve’s cautious approach to interest rates was reflected in the 10-year Treasury note yield on Tuesday, which increased by almost 7 basis points. This move came after traders reconsidered the possibility of a rate cut in June, following news that U.S. manufacturing expanded for the first time in 17 months. The Institute for Supply Management released data on Monday showing that its manufacturing index had climbed to 50.3, up from 47.8 in February and surpassing the Dow Jones consensus estimate of 48.1.

In contrast, the 2-year Treasury note yield increased by nearly 1 basis point to 4.726%, despite yields and prices moving in opposite directions with one basis point equaling 0.01%. Market odds for a June rate cut have decreased significantly as a result of this growth, with fed futures trading indicating that investors are being cautious about future cuts, particularly given the unexpected resurgence in U.S. manufacturing growth.

ING’s research note pointed out that this manufacturing growth has reduced the likelihood of significant Fed rate cuts, further reinforcing market pricing favoring three cuts potentially beginning in June, depending on future data developments. Last month, the Fed kept interest rates unchanged for the fifth successive time while maintaining expectations by maintaining its benchmark overnight borrowing rate within a range of 5.25%-5.5%.