Treasuries Extend Rally Ahead Of Next Week’s Federal Reserve Decision

After recovering from early weakness to end the previous session sharply higher, treasuries showed another strong move to the upside during trading on Friday.

Bond prices gave back some ground after an early rally but remained firmly positive. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 12.7 basis points to 2.783 percent.

The ten-year yield added to the 12.6 basis points slump seen in the previous session, ending the session at its lowest closing level in almost two months.

The continued strength among treasuries came as traders looked ahead to next week’s highly anticipated monetary policy decision by the Federal Reserve.

The Fed is widely expected to raise interest rates by at least 75 basis points as part of its ongoing efforts to combat elevated inflation.

CME Group’s FedWatch Tool is currently indicating a 78.7 percent chance of a 75 basis point rate hike and a 21.3 percent chance of a 100 basis point rate hike.

Recent U.S. economic data has shown signs of a slowdown, easing concerns that the Fed will opt for the more aggressive increase in rates.

Treasuries also benefited from a pullback on Wall Street, with disappointing earnings news from Snap Inc. (SNAP) and Twitter (TWTR) contributing to a sell-off by tech stocks.

The Fed decision is likely to be in the spotlight next week, although trading could also be impacted by reaction to reports on consumer confidence, new home sales, durable goods orders, second quarter GDP and personal income and spending.

Bond traders are also likely to keep an eye on the results of the Treasury Department’s auctions of two-year, five-year and seven-year notes.

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