Bond yields remained little changed on Monday as appetite for risk across markets reduced demand for sovereign debt, while investors assessed what’s next for the Federal Reserve’s interest-rate decision at its June 13-14 policy meeting.
What happened
-
The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.606% slipped by 2.1 basis points to 4.480% versus 4.501% at 3 p.m. Eastern on Friday, according to Dow Jones Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.742% remained unchanged at 3.691%. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.883% rose less than 1 basis point to 3.890%, compared with 3.882% late Friday.
What drove markets
Appetite for risk across global markets was damping demand for U.S. Treasurys, with yields briefly nudged higher on Monday morning after last week’s May jobs report, which suggested the U.S. economy has so far absorbed the Federal Reserve’s rate-hike cycle without too much damage.
However, the employment data also suggested that wage inflation was easing, and this was encouraging investors to bet on the Fed leaving interest rates unchanged next week.
Markets are pricing in a 79.4% probability that the Fed will leave interest rates unchanged at a range of 5.0% to 5.25% after its meeting on June 14, according to the CME FedWatch tool. Just a week ago that probability was 36%, and the chances of a 25-basis-point hike was 64%.
However, the probability of another 25-basis-point rate rise in July has climbed from 5% a month ago to 52.7% on Monday.
In U.S. economic data, most U.S. businesses grew at a slower pace in May as customer demand leveled off, a new survey showed. The ISM services index fell to a five-month low of 50.3% last month. Numbers above 50% indicate companies are expanding, but the U.S. economy has slowed markedly from a year ago.
Orders for manufactured goods rose 0.4% in April, the Commerce Department said Monday. It is the fourth increase in factory-goods orders in the past five months. Economists surveyed by The Wall Street Journal were expecting a 0.6% rise.
What analysts said
“The week after payrolls is almost always a bit quiet for data and this week we have the added kicker of a Fed that has started their media blackout period ahead of next week’s FOMC. Remember that U.S. CPI comes out on Tuesday 13th, a day ahead of the FOMC decision,” said Jim Reid, strategist at Deutsche Bank.
“If the Fed wants to subtlety communicate to the market one way or another ahead of next week then well-placed media stories might surface. However, before CPI that does seem unlikely as nothing will be 100% decided until then. We are back to having a fair bit of uncertainly over the near-term Fed outlook though,” Reid added.
