The U.S. Treasury Yield Curve remains inverted with yields peaking at 5.06% for six-month T-bills and falling to 3.93% for 30-year bonds. We continue to view maturities in the four-month through the two-year range as attractive for purchase. We also think TIPS with real yields of 1.6% to 1.7% (plus headline CPI) are attractive for purchase.

Month-over-month and year-over-year changes per UST maturity:

The U.S. Treasury Auction Schedule includes a 10-year TIPS reopening on March 23rd and a 2-year Floating Rate Note (FRN) reopening on March 29th:

You can purchase treasuries directly at TreasuryDirect.gov or via your brokerage.

The next Federal Open Market Committee (FOMC) meeting is scheduled for March 21st and 22nd. We expect a 25 basis point rate hike at the March meeting, though a 50 basis point rate hike cannot yet be ruled out. The meeting will include an updated Summary of Economic Projections (SEP) from FOMC members. Below is the central tendency from the most recent (December) SEP. The central tendency removes the three highest and three lowest projections.

Below is the most recent FOMC fed funds rate forecast (aka The DotPlot): Each blue dot represents each FOMC member’s fed funds rate forecast for year-end 2022, 2023, 2024, and 2025. Per this chart, you can see all but two FOMC members forecast a fed funds rate above 5% in December 2023 and a fed funds rate below 5% in December 2024. We expect some of the 2023 and 2024 dots to move higher in the March SEP.

Below are the latest CME FedWatch probabilities for the March FOMC meeting and beyond. It shows a 73% chance of a quarter-point rate hike and a 27% chance of a half-point rate hike in March. Either way, there is a 100% chance of a rate hike. You can see that most investors expect the fed funds rate to finish the year in the 5.0% to 5.75% target range.

In other FOMC news, this WSJ article reports that the White House is narrowing down to two candidates to replace Fed Vice Chair Brainard.

The two—Janice Eberly, a finance professor at Northwestern University, and Karen Dynan, an economist at Harvard University—both served as the assistant Treasury secretary for economic policy, a position akin to the department’s chief economist.

Upcoming economic reports:

Feb 27:

• Durable goods orders

• Pending home sales

• Dallas Fed Manufacturing

Feb 28:

• Redbook

• S&P Case-Shiller home prices

• Chicago PMI

• Consumer confidence

• Dallas Fed Services

• Richmond Fed Manufacturing & Services

Mar 1:

• ISM Manufacturing

• MBA Mortgage applications

Mar 2:

• Jobless claims

• Unit Labor Costs

• Productivity

Mar 3:

• ISM Services

• Vehicle Sales