Yield Movement
- The yield on the 2-year Treasury slipped by 2.5 basis points to 5.159%.
- The yield on the 10-year Treasury rose 2.7 basis points to 4.831%.
- The yield on the 30-year Treasury added 2.8 basis points to 4.955%.
Market Drivers
U.S. government bonds have been under pressure due to better-than-expected economic data, which has encouraged Fed officials to continue their hawkish rhetoric. This has led to concerns that interest rates may have to rise again and remain at elevated levels for a longer period than previously anticipated. The release of job openings data on Tuesday only intensified these fears.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, explains that the recent anxiety in the bond market is a result of unexpected growth in job vacancies in the U.S. during August.
The market turbulence was further fueled by concerns over political dysfunction in Washington. The recent ousting of a House Speaker added to the uncertainty. This dysfunction not only creates obstacles for future discussions on the debt ceiling but also has wider policy repercussions.
Overall, the combination of economic data and political instability has caused bond yields to surge, leaving investors worried about the future direction of interest rates.
Treasury Yields Reach New Heights
In recent developments, the 10-year Treasury yields surged to almost 4.90%, reaching a peak not seen in 16 years. Furthermore, the 30-year U.S. government bond yield surpassed 5% for the first time since August 2007. This information comes from a report by Reuters. Adding to this, Germany's 10-year note, the benchmark for the eurozone, climbed above 3% for the first time since 2011.
Although yields initially spiked, they have since eased back from their session highs.
Bond Investors Turn to Economic Data
Bond investors are closely monitoring economic data in hopes that softer figures may curb the surge in yields. Key reports to be watched include the ADP private sector employment report for September, set to be released at 8:15 a.m. Eastern, the final reading of the S&P services PMI for September at 9:45 a.m., and the August factory orders and September ISM services report, both scheduled for 10 a.m.
In addition, there will be speeches from Federal Reserve officials. Fed Governor Michelle Bowman is scheduled to speak at a banking conference at 10:25 a.m., followed by welcoming remarks from Chicago Fed President Austan Goolsbee at a banking symposium starting at 10:30 a.m.
Market Expectations and Forecasting
According to the CME FedWatch tool, markets are currently pricing in a 66% probability that the Federal Reserve will maintain interest rates at a range of 5.25% to 5.50% after their next meeting on November 1. Looking ahead to the subsequent meeting in December, there is a 40% chance of a 25 basis point rate hike, pushing the range to 5.50% to 5.75%.
Forecasts suggest that the central bank is unlikely to reduce its Fed funds rate target to approximately 5% until October 2024. This projection is based on the analysis of 30-day Fed Funds futures.
Stay tuned for further updates on this evolving situation.
