Bond yields were little changed on Monday as traders as investors awaited fresh clues on prospects for the U.S. economy.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose less than 1 basis point to 4.097%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
was barely changed at 4.151%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell less 1 basis point to 4.259%.
What’s driving markets
There are no notable economic data due Monday, so investors will be looking ahead to macro updates later in the week, including U.S. retail sales on Tuesday, the minutes of the previous Federal Open Market Committee meeting on Wednesday, and the leading economic indicators report on Thursday.
Benchmark 10-year Treasury yields sit near the top of their recent range, and only several basis points below their highest level since 2008. The increase in yields comes as headline inflation sits only 1.2 percentage points above the Fed’s 2% target, but as investors become concerned about the market’s ability to absorb $1 trillion of supply in the third quarter.
Markets are pricing in an 89% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20, according to the CME FedWatch tool.
The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in November is priced at 32%.
The central bank is not expected to take its Fed funds rate target back down to around 5% until May 2024, according to 30-day Fed Funds futures.
What are analysts saying
“The soft July CPI report and dovish comments from New York Fed President John
Williams this week [beginning August 7] supported our view that the FOMC is likely to skip a rate hike at the September meeting and ultimately decide in November that the core inflation trend has slowed enough to make a final hike unnecessary,” said Goldman’s economics team, led by Jan Hatzius.
“We expect the first rate cut in 2024Q2. By that point, we expect core PCE inflation to have fallen below 3% on a year-on-year basis and below 2.5% on a monthly annualized basis, and wage growth to have fallen below 4% year-on-year. Those thresholds for cutting align roughly with the annual forecasts in the FOMC’s Summary of Economic Projections and the conditions at the outset of the last cutting cycle motivated by an intent to normalize from a restrictive policy stance as inflation came down in 1995,” he added.
Read the full article here
