30-year Treasury yield drops to five-week low, with Fed speakers still ahead

What’s happening

• The yield on the 2-year Treasury
  TMUBMUSD02Y,
  4.695%
  declined 2.5 basis points to 4.695% from 4.720% on Friday. The yield is down two of the past three trading sessions, according to 3 p.m. Eastern time figures from Dow Jones Market Data. Financial markets were closed on Monday for the Juneteenth federal holiday.

• The 10-year Treasury yield
  TMUBMUSD10Y,
  3.722%
  fell 4.2 basis points to 3.726% from 3.768% Friday afternoon. Tuesday’s level is the lowest since June 8.

• The yield on the 30-year Treasury
  TMUBMUSD30Y,
  3.813%
  slipped 4 basis points to 3.815% from 3.855% on Friday. Tuesday’s level is the lowest since May 12.

• The 10- and 30-year yields are down three of the past four New York trading sessions.

What’s driving markets

Fed Chair Jerome Powell is scheduled to begin the first of two days worth of semi-annual congressional testimony on Wednesday, providing financial markets another opportunity to absorb the prospect of further interest rate hikes this year. Analysts expect Powell to reiterate the hawkish message shown in policy makers’ rate projections last week.

Read: ‘Confused’ markets get another chance to hear Fed’s Powell ‘flesh things out’ on 2023 rate path

The spread between 2- and 10-year Treasury yields inverted to minus 96.9 basis points on Tuesday, one of its most negative levels of the year. The Fed’s median forecast for its main interest-rate target pointed to two more rate increases this year, while the most recent reading on weekly jobless benefit claims was elevated in a possible sign of labor-market deterioration.

Data released on Tuesday showed that construction on new American homes jumped 21.7% in May, as builders ramped up activity to meet strong demand.

What analysts are saying

“A skip by the Fed may seem favorable, but the magnitude of tightening is more important, as this tightening cycle has been one of the swiftest hiking campaigns in history,” said Jason Pride, chief of investment strategy and research, and Michael Reynolds, vice president of investment strategy at Glenmede, which managed more than $41.5 billion in assets as of March.

“The Fed is expected to raise rates two more times this year, but markets appear skeptical,” they wrote in a note Tuesday. “Investors should remain cautious in this environment, as past periods of significantly tight monetary policy have not been favorable to the economy, often preceding recessions with a lag.”