[ad_1]
Treasury yields were sharply lower Tuesday morning, following a U.S. holiday weekend, as fed funds futures traders priced in a high likelihood that the Federal Reserve may not raise interest rates again in this cycle.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slipped 8.2 basis points to 4.995% from 5.077% on Friday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated 10.2 basis points to 4.681% from 4.783% on Friday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell 6.3 basis points to 4.878% from 4.941% on Friday. - The cash market was shut for the Columbus and Indigenous Peoples holiday on Monday.
What’s driving markets
Treasury trading returned after a U.S. holiday on Monday, with Treasury yields sinking as traders and investors absorbed the outbreak of war between Israel and Hamas, plus comments interpreted as being a dovish from Fed officials.
On Monday, Fed Vice Chair Philip Jefferson said the central bank could “proceed carefully” following the recent surge in Treasury yields to 16-year highs, and Dallas Fed President Lorie Logan said the surge in long-term yields may mean less need for additional rate increases by policy makers.
Tuesday’s retreat in yields will be put to the test in coming days, with data on producer and consumer prices for September to be released on Wednesday and Thursday.
For now, fed funds futures traders are pricing in an 86.4% chance of a pause by the Fed on Nov. 1, according to the CME FedWatch Tool. They also see a 72.4% likelihood of no action by December, which would leave the Fed’s main interest-rate target at a 22-year high between 5.25%-5.5%.
Treasury is set to auction a total of $224 billion in 4-, 8- and 17-week securities on Tuesday, in addition to $46 billion of 3-year bonds.
What analysts are saying
“Considerable uncertainty remains over several underlying forces guiding the Treasury market, including the outlook for government bond issuance, the economically neutral level of fed funds rates, and the term premium — the rate of compensation demanded by investors for holding longer-term over shorter-term bonds. But, in our view, the recent upward momentum in yields has been spurred largely by technical factors and should be reversed,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.
[ad_2]
Source link
