Performance Boost: U.S. Treasury yields rose on Tuesday as investors balanced prospects that the U.S. economy will avoid a recession against upcoming results from a two-year bond auction, which are expected to show investor demand.
That supported Wall Street expectations and narrowed the spread between two- and 10-year Treasury yields — key indicators of growth expectations — to its narrowest level in three weeks, at -8.7 basis points, compared with -12.4 basis points on Monday. All of this suggests that the bond market is starting to price in an expected easing cycle by the Federal Reserve, which is likely to begin next month.
Economic data drove market swings on Tuesday, with 10-year Treasury yields briefly dipping after reports showed U.S. single-family home prices fell in June, bringing the annual increase to its lowest level in nearly a year.
In the latest available readings, the 10-year bond yield rose 2.4 basis points to 3.844%, while the 30-year bond yield rose 3.2 basis points to 4.139%. The two-year Treasury bond yield remained at 3.928%.
Another report indicated that U.S. consumer confidence rose in August, but also noted that Americans were becoming more cautious about the labor market.
The Treasury is scheduled to auction off $40 billion in two-year bonds at 1 p.m. Eastern time, and the results will provide a clear signal of whether investors place much confidence in any of the data.
Markets are reeling Investors are eager to see how aggressively the Federal Reserve might cut interest rates to avoid a recession. “The question is how slowly the economy is slowing. That will determine how quickly the Fed will ease policy,” said Stan Shipley, a fixed-income strategist at Evercore ISI in New York.
The growing likelihood of a 50-basis-point cut in the next two weeks has increased the pressure, and has not gone unnoticed by Treasury markets and other sovereign bond yields, where expectations are for faster central bank easing to reduce recession risks.
Rates fell last week after the Fed indicated at its Jackson Hole symposium that it is ready to cut rates. Fed Chair Jerome Powell hinted at the likelihood of a rate cut and, for the first time, added that it is important to further cool labor markets, while sounding confident that inflation is nearing the 2 percent target.
At the time of writing, traders were pricing in a 25- or 50-basis-point rate cut in September. CME Group’s FedWatch tool showed a 71 percent chance of a 25-basis-point cut and a 29 percent chance of a 50-basis-point cut.
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.