10-Year Treasury Yield Rises to Start August
Longer-term Treasury yields rose to start the month on Monday, while short-term rates fell as investors weighed the prospects of a recession and the pace and scope of future Fed rate hikes.
What Do Yields Do
The yield of the 2-year Treasury bills TMUBMUSD02Y,
fell to 2.88% from 2.897% at 3 p.m. Eastern on Friday. Yields and debt prices move in opposite directions.
The yield of the 10-year Treasury note TMUBMUSD10Y,
was 2.656% against 2.642% on Friday afternoon.
The 30-year Treasury bond TMUBMUSD30Y,
returned 3.021%, down from 2.976% Friday night.
What is driving the market
Growing fears of a recession were cited for dragging yields last week and into August. The 2-year yield moved further above the 10-year rate early last week, deepening an inversion in a measure of the yield curve seen as a reliable warning signal of recession.
Last Wednesday, the Fed ended its two-day policy meeting with another 75 basis point rate hike in an effort to curb soaring inflation. Fed Chairman Jerome Powell said last week that another 75 basis point move could be on the cards in September, but that the Fed would take a data-driven, meeting-by-meeting approach to decision-making.
Powell also warned that the economy would need to experience a period of below-trend growth to contain runaway inflation and that the path to a so-called soft landing for the economy continued to narrow.
The 2-year versus 10-year curve measure eased its inversion as short-term rates fell more sharply as investors lowered their expectations for future Fed rate hikes.
Meanwhile, investors will be paying close attention to economic data, culminating in Friday’s July jobs report. Non-farm payrolls and other employment data will be analyzed for signs that a still strong labor market is beginning to show cracks.
On Monday, the Institute for Supply Management’s closely watched manufacturing index for July is due at 10 a.m. a m
What analysts say
“With Fed policy now in the range of what the Fed considers neutral, it’s natural to expect that it’s probably appropriate to slow rate hikes ‘at some point,’ as the Powell noted. However, we don’t believe we’re there yet,” John Canavan, principal analyst at Oxford Economics, said in a note.
“Currently, markets are pricing only around a 30% chance of a 75bp rate hike at the September meeting, with an implied rate expected for September of 2.90%. That’s down from from over 3.10% just after the June CPI release earlier this month,” he wrote. “The market-based probability of a 75 basis point hike should increase as inflation remains uncomfortably high this year, and the implied federal funds rate for December of around 3.28% is also likely to be adjusted upwards.”