U.S. yield curve steepens as bond traders see Fed cuts looming
Yields on policy-sensitive two-year Treasuries slid three basis points on Wednesday, while those on 10-year bonds were up by about the same amount.
Yields on policy-sensitive two-year Treasuries slid three basis points on Wednesday, while those on 10-year bonds were up by about the same amount.
Yields across maturities rose by three to five basis points as volumes picked up in midday Monday trading in New York.
Investors are set to start the week scrambling to decide if President Joe Biden's decision to end his reelection campaign and endorse Vice President Kamala Harris increases or decreases Donald Trump's chances of regaining power.
The resilience of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening.
Optimism tied to an ebb in inflation was on full display this week in US government debt, with yields across the curve slumping as the data was seen supporting the case for lower borrowing costs as soon as September.
The U.S. 30-year yield reached the highest level in a month on Monday amid predictions that a Trump presidency would lead to higher inflation.
Traders are now betting that may be enough for the Federal Reserve to start cutting interest rates as soon as September.
The move was led by the two-year yield, which at one point fell nearly 8 basis points below 4.69% — short of last week's low 4.65%.
The $39 billion 10-year note sale was awarded at 4.438%, compared with a yield of 4.458% in pre-auction trading at 1 p.m. New York time, the bidding deadline.
Treasury yields surged across the curve on Friday, while traders — as well as economists at JPMorgan Chase & Co. and Citigroup Inc. — pushed out their expectations for the Fed's first rate reduction.
The recalibration came amid the best two-day rally for short-end Treasuries since January, following the central bank's latest policy meeting on Wednesday.
Traders have built positions in options linked to the Secured Overnight Financing Rate targeting a scenario where officials keep rates steady past December's policy meeting.
Traders are no longer fully pricing in a rate cut before November, while at the start of the year, cuts beginning in March were fully priced in.
Global yields rose on Thursday as markets around the world adjusted to central banks keeping interest rates higher for longer, with the US two-year yield briefly exceeding 5% for the first time since November.
Traders ceased fully pricing in a Fed rate cut before September after the March employment report revealed that US payrolls expanded by the most in nearly a year.
Treasuries fell across the curve after data showed manufacturing unexpectedly expanded for the first time since September 2022 — while input costs climbed.
Treasuries fell across the US curve, with shorter maturities leading the way after Federal Reserve Governor Christopher Waller said he wants to see "at least a couple months of better inflation data" before cutting rates.
Treasury yields retreat from 2024 highs with month-end in view
The trend gained momentum this week, when there was strong demand for contracts wagering that 10-year yields will breach 4.5%, a level they haven't exceeded since November.
Treasuries sold off, with two-year yields hitting the highest since before the December central bank "pivot." Swap traders ratcheted down their expectations for a Fed cut before July.
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