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Treasury yields moved higher Monday morning, after retreating last week, as expectations for Federal Reserve rate increases moderated in response to growing recession fears.
What yields are doing
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.176%
was at 3.167%, up from 3.125% at 3 p.m. Eastern on Friday. -
The yield on the 2-year Treasury note
TMUBMUSD02Y,
3.089%
was at 3.085% versus 3.057% Friday afternoon. The 2-year yield had dropped 10.7 basis points last week, its largest weekly drop since the period that ended March 20,2020, based on 3 p.m. levels, according to Dow Jones Market Data. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
3.315%
was 3.308% versus 3.258% late Friday.
What’s driving the market
Data released on Monday showed that durable goods orders rose 0.7% in May, a stronger than expected reading that showed manufacturers still had plenty of demand for their products. Meanwhile, U.S. pending home sales rebounded last month, reversing a six-month decline.
Even so, recession fears continued to dominate financial markets. Last week, Federal Reserve Chairman Jerome Powell told lawmakers that a recession was a possibility as the central bank moves to get inflation under control.
Read: Recession is challenging inflation as top fear among stock and bond investors
The Federal Reserve has moved aggressively to raise the fed-funds rate and delivered a hike of 75 basis points, or three-quarter of a percentage point, in June, its largest since 1994, after a half-point rise in May and a quarter-point rise in March. The Fed also started shrinking its balance sheet this month.
The central bank’s preferred price gauge, the core personal-consumption expenditures, or PCE, inflation reading for May is due on Thursday morning.
What analysts say
“The process of translating higher policy rates into a cogent forecast for growth has become particularly challenging given the realities of a Fed poised to push target funds to levels not seen since at least 2008,” wrote strategists Ian Lyngen and Benjamin Jeffery at BMO Capital Markets.
“This issue is less of one related to the outright level of rates as much as it is of the parallels (or lack thereof) between the state of the U.S. economy now versus 14 years ago,” they wrote. “Inflation is high, unemployment is low, however real GDP expectations both domestically and abroad are quickly coming under pressure with recessionary fears far more topical than one might have assumed as recently as the June 15 FOMC meeting during which 75 bp was deemed the most prudent path for policy rates in light of the balance of risks. Investor sentiment has shifted quickly in terms of the outlook and we’re increasingly of the mind that the peaks for U.S. rates have been established.”
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