US T-bond yields to hit new highs on strong ADP employment data – MUFG

The 10-year US-T bond yield jumped further on Tuesday to a high of 1.68%. On Wednesday, US private sector employment report published by the ADP and FOMC's minutes of the December policy meeting will be watched closely by market participants. Economists at MUFG Bank believe 10-year yields could hit new highs.

FOMC minutes in focus as yield surge continues

“How concerned the Fed has become over inflation may be evident in the FOMC minutes of the December meeting, released this evening. The focus will be on the inflation debate and how confident the FOMC remains over the fall in inflation. Discussions on the level that equates to full employment and the willingness to move more quickly to ‘Quantitative Tightening’ will also be important for rates and the dollar.”

“Given the momentum for higher rates we’d be surprised to see these minutes resulting in a reversal given how clear the Fed was in shifting to focusing on inflation risks. That could well see 10yr yields hitting new highs, especially if the ADP employment data is strong.”

“While the dollar can perform best versus the low-yielding G10 currencies it will become increasingly difficult for the high-beta G10 currencies to advance if US yields continue to drift higher from here.”