Rates Spark: Treasuries On Powell Demeanor-Watch

2025-03-19 04:20:00 ET

Summary

• US Treasuries got unusually excited about the 20yr auction on Tuesday; usually a tenor that few pay attention to. The bigger impulse is ongoing angst in US risk assets.
• Yet, Treasury yields continue to reject the nod to go materially lower. We still see 4% as a firm floor.
• The FOMC is up next. This one is all about Powell's mood, the dots, and maybe QT wind-down.

By Padhraic Garvey, CFA and Benjamin Schroeder

Treasuries will have a keen focus on the path for quantitative tightening

Following the last FOMC meeting, Chair Powell was asked one question on quantitative tightening (QT). He read out what seemed like a prepared statement, basically saying nothing of any materiality. But then the subsequent minutes showed that the path for QT was, in fact, a talking point among the committee members. And so it should be, as on our numbers, continued QT at the current pace would likely see bank reserves converge on US$3tn by mid-year 2025....

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