Treasury yields were little changed Monday morning as traders digested a mix of views from Federal Reserve officials since the weekend.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slipped 1.2 basis points to 4.779% versus 4.791% on Friday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
advanced less than 1 basis point to 4.067% from 4.06% Friday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was up 1.4 basis point to 4.228% from 4.214% late Friday.
What’s driving markets
Yields held steady after New York Fed President John Williams said in an interview published by the New York Times on Monday that it’s “an open question” whether additional rate hikes are needed and that rates could begin to come down next year.
Relatively hawkish talk from a second official, Federal Reserve Gov. Michelle Bowman, on Saturday. She said the central bank will likely need to raise interest rates even higher to bring inflation down to tolerable levels.
Their comments came after labor data released on Friday showed the U.S. added a more modest 187,000 jobs in July, but there was still upward pressure on wages — suggesting inflationary pressures remain embedded in the economy.
Markets are 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 priced at 29%.
The central bank is mostly expected to take its fed funds rate target back down to around 5% or lower next March or May.
Also weighing on traders are concerns about increased supply after the Treasury said last week that it would need to borrow $1 trillion in the third quarter.
What analysts are saying
“The beginning of this week will be spent with choppy price action as the market settles into a new trading range,” BMO Capital Markets strategists Ian Lyngen and Ben Jeffery said. “Ten-year yields have retained a 4-handle, despite dipping to 4.04% overnight. While we continue to anticipate the final weeks of summer will leave yields lower, we’ll respect the price action and not seek to fight the selloff until there is confirmation of solid demand for the refunding auctions and a deceleration in the pace of consumer price inflation via Thursday’s CPI release,” they said in a note.
