TREASURIES set for first major test of 2022

The bulls of the bond market are poised for the first major test of the year 2023 according to Bloomberg.

The Federal Reserve is nearing the end of its interest-rate hikes as inflation comes down and tighter financial conditions cool the economy, which has boosted the yield on the treasuries this month. In the coming week traders will find out if that is likely the case as the central bank announces its latest decision and the monthly job-market report is released.

There are investors who are plowing back into bonds because of the expectation that an economic slowdown will drive the Fed to stop its hikes and then shift to easing monetary policy later this year. Money managers and pension funds have been shifting their funds from equities to long-dated bonds as the yields on benchmark 5 and 10 year have dropped around 40 basis points in January.

Asset managers came into the year with large cash balances and there is a little bit of a get in now before it's too late sentiment, said Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management. If history is a guide to global disinflation, investors are seeing weaker data, and turning points can be abrupt. This week, investors bought much bigger pieces of new Treasury debt sales than is usually seen, locking in yields that are near the higher end of the range seen over the past 15 years. Treasuries are seen as an attractive hedge against a recession at current levels. There have been signs of a slowdown in the industry, with companies like Intel Corp. bracing for a weaker outlook and consumers being squeezed.

The twin forces of employment growth and price pressure are expected to support the macroeconomic outlook, which will keep benchmark yields rangebound. The Fed will raise its benchmark rate by a quarter point on Wednesday, followed by only one more such move this year, as swaps traders are pricing in that range of 4.25% to 4.5%.

The Fed s preferred inflation measure eased to the slowest annual pace in over a year on Friday. On February 3, economists expect the Labor Department to report that payroll growth slowed to 190,000 in January, down from 223,000 in December.

Other key data releases include the employment cost index and job-opening figures, along with the employment and price gauges in the ISM surveys of both manufacturing and services activity.

If Fed Chair Jerome Powell pushes back on traders expectations, the Treasury market is at risk of a reversal. At the Fed's December meeting, officials indicated that policy would stay elevated during 2023 at a peak of 5.1% with no rate cuts expected, a more hawkish forecast than markets are now pricing in.

The market and the Fed's estimate of policy may take some time to resolve over the next three to six months, according to Goldman s Wilson-Elizondo. If inflation is stickingier and labor-market resilience makes people think the Fed may need to keep policy restrictive to break the back of the jobs market, the enthusiasm for buying Treasuries will likely continue until the end of the year. None Even $370 billion in US incentives won't solve all of the Solar s Struggles Struggles, none Even $370 Billion in US incentives.