Traders are back to pricing in a better-than-50% chance that the first rate hike by the Federal Reserve will arrive in March, as the first trading day of the year kicked off with renewed optimism that rising COVID-19 cases may have a more limited economic impact than previously thought.
Data compiled by the CME Group Inc. shows the odds of a March liftoff at almost 54% as of Monday, up from 50% on Dec. 31. Monday’s almost 54% likelihood is similar to what was priced in a week ago — when the 2-year Treasury yield
, or the rate most associated with the near-term path of Fed policy, hit a nearly two-year high. Traders saw only a 26% chance of a March rate hike on Dec. 3.
Investors’ improved optimism about the outlook was reflected in rising Treasury yields across the board on Monday, with the 10-year rate
climbing to the highest level in more than a month. Investors sold off Treasurys in early Monday trading amid studies showing the omicron variant to be less severe than other variants, despite rising hospitalizations.
Sign up for our Market Watch Newsletters here.
“Treasuries are catching up to a tighter Fed reality,” wrote Ben Emons, managing director of global macro strategy at Medley Global Advisors.
Also on Monday, U.S. stock benchmarks
saw choppy action, though the Nasdaq Composite Index
was buoyant in 2022’s first trading session.