- Treasury yields declined due to concerns about the US banking sector.
- On Wednesday, Powell and other Fed policymakers confirmed that rate cuts would come later than March.
- Shares of New York Community Bancorp fell further because of concerns about commercial real estate.
Interest futures rose on Thursday as Treasury yields declined due to concerns about the US banking sector. The US Treasury Bond (ZB) futures and the 10-year T-Note (ZN) futures ended Thursday on a bullish note. Meanwhile, investors continued to absorb Powell’s remarks on Wednesday, which confirmed that rate cuts would come later than March.
Concerns regarding the US banking sector intensified when shares of New York Community Bancorp fell further because of concerns about commercial real estate. Consequently, the KBW regional banking index lost 2.28% of its value.
On Wednesday, ratings agency Moody’s said it had put the bank on review for a downgrade, increasing the chances of it falling into “junk” territory. This came after NYCB announced a cut of 70% on its dividend. Notably, NYCB bought some assets from the collapsed Signature Bank in 2023.
Banking fears were the main reason why Treasury yields fell despite an indication from the Fed that rate cuts would be delayed. Otherwise, yields would have risen, leading to a decline in interest futures.
Notably, Wednesday was a good day for the dollar as Fed Chair Jerome Powell dashed expectations for a rate cut as early as March. Consequently, investors have lowered the possibility of a rate cut in March to 37.5% from nearly 90% at the end of last year. Meanwhile, expectations for a rate cut in May have risen to 96%.
US jobless claims (Source: Labor Department)
Meanwhile, data from the US showed a gradual decline in labor market momentum with a surge in initial jobless claims last week. Another report showed that US worker productivity grew surprisingly fast in the fourth quarter, keeping unit labor costs contained.
Investors are now focused on the January employment report coming out on Friday. Economists expect the US will report an increase of 180,000 jobs last month. This would be a drop from the 216,000 jobs reported in December. Meanwhile, economists see the unemployment rate climbing to 3.8% from 3.7 in December. A higher-than-expected reading on jobs would further lower bets for a March cut, leading to a rise in Treasury yields and a drop in interest futures.