FOMC minutes in focus amid rising Treasury bonds yields

Following a mixed session on Wall Street, stock markets in Asia were in red Wednesday. While Europe's markets are expected to open lower due to the rise in U.S. bond yields.

Interest rates in the bond market had the biggest first day of the year trade in two decades. Treasury yields pushed higher at the fastest new year pace since 2001. The closely-watched benchmark 10-year Treasury yield was as high as 1.71% Tuesday, after ending 2021 at 1.51% Friday afternoon.

The yield on U.S. two-year notes hit its highest level since March 2020 on Tuesday after U.S. five-year notes, which reflect rate hike expectations, surged to their highest level since February 2020.

Instead of jumping higher on the Fed news, Treasury bonds continued to trade lower as investors bought Treasurys as a safe haven should the Omicron Covid variant slow the economy. However, since studies have shown that the rapidly spreading strain does not result in as many hospitalizations and deaths as feared, those concerns have dwindled.

Events of today

The latest U.S. economic data indicate a robust recovery, and this week includes a set of figures that will provide detailed information on the state of the labour market.

The ADP non-farm employment change for December will be released on Wednesday afternoon. It is expected that the number will slip from 534K in November to 400K in December.

Markets will also be seeking the release of the minutes of the Federal Reserve's December meeting. Last month, the central bank announced that it would speed up the tapering of its bond-buying program and that it would hike interest rates three times in 2022. Transcripts of their meeting may confirm this optimistic view, possibly even revealing more details on their tightening plans and when the first hike may occur.

European data released on Wednesday includes final PMI (purchasing managers' index) data for the euro zone's services and manufacturing industries, as well as Italian consumer confidence data for December.