Long-dated Treasury yields slipped from their highest levels since 2007 and 2011 as buyers of U.S. government debt emerged on Tuesday, ahead of Friday’s widely anticipated Jackson Hole speech by Federal Reserve Chair Jerome Powell.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
advanced 4.5 basis points to 5.035% from 4.990% on Monday. Tuesday’s level is the highest since March 8, based on 3 p.m. data from Dow Jones Market Data. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
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declined 1.2 basis points to 4.327% from 4.339% Monday afternoon. Tuesday’s closing level is the second-highest of the year. The 10-year rate ended Monday at its highest level since Nov. 6, 2007. -
The yield on the 30-year Treasury
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slipped 4.5 basis points to 4.410% from 4.455% late Monday. The 30-year rate finished Monday at its highest level since April 27, 2011.
What drove markets
Treasury yields were mixed on Tuesday, as traders await Friday’s speech by Powell at the Fed’s annual symposium in Jackson Hole, Wyo.
The Fed chairman’s remarks are likely to reinforce the “higher for longer” message being seen in U.S. rates, “but we don’t expect much commitment to a September hike or much change to the data dependent tone,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.
Fed funds futures traders are currently pricing in an 84.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is seen at 39.9%.
In U.S. economic updates on Tuesday, sales of previously owned homes fell 2.2% to an annual rate of 4.07 million in July.
What analysts are saying
“With investors continuing to expect higher rates for longer, this period feels increasingly reminiscent of the early 2010s in reverse. Back then after the Great Financial Crisis, policy rates had been slashed to zero by central banks, but there was always the expectation that rate hikes were never too far away. Yet in reality, they kept being pushed out year after year,” said Deutsche Bank’s Henry Allen, Jim Reid, and others.
“Today, it feels like the same process is happening again, except with rate cuts this time, which are also being pushed out ever further into the future. For instance, the first rate cut from the Fed is now priced in for May 2024, but that timing has continued to move into the distance. Indeed, back in March at the height of the SVB [Silicon Valley Bank] turmoil, investors were pricing in that rate cuts would already have begun by now,” the Deutsche Bank team wrote in a note.
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