Yields rebound, curve inverts again after brief positive shift
Updated at 1500 EDT
By Karen Brettell
NEW YORK, Aug 5 (Reuters) -U.S. Treasury yields rebounded from one-year lows on Monday on greater optimism over the U.S. economy and a closely watched part of the yield curve reinverted, after briefly turning positive for the first time in two years.
Yields tumbled earlier on Monday on recession fears, following an unexpected increase in the unemployment rate and fewer than expected job gains in July’s employment report on Friday.
That caused a rapid repricing of expectations on when and how far the Federal Reserve will cut interest rates.
But yields rose off their lows afterChicago Fed President Austan Goolsbee said on Monday that the jobs datadoes not indicate a recession, while noting that Fed policymakers must carefully monitor changes in the U.S. economy to avoid being too restrictive with interest rates.
Goolsbee is "notably the most dovish member for quite some time at the Fed and he didn't suggest that there was any real alarm," said James Knightley, chief international economist, US at ING.
U.S. services sector activity also rebounded from a four-year low in July amid a bounce back in new orders and the first increase in employment in six months.
"The ISM services report was pretty good," said Knightley. "We're starting to see a little bit of calm return and a little bit of stability return" to the market.
Traders are now pricing in an 86% chance the Fed will cut rates by 50 basis points at its next scheduled policy meeting in September, and a 14% chance of a 25 basis point reduction. A 50 basis point cut was fully priced in earlier on Monday, with a 75 basis point cut also seen possible, according to the CME Group's FedWatch Tool.
Traders had also begun positioning for a possible emergency rate cut before September.
Yields on interest rate sensitive two-year notes US2YT=RR were last up 1 basis point at 3.883%,after earlier getting as low as 3.654%, the lowest since April 2023.
Benchmark 10-year note yields US10YT=RR fell 2 basis points to 3.777%, after reaching 3.667%, the lowest since June 2023.
The gap between two- and 10-year Treasury notes US2US10=TWEB was last at minus 11 basis points, after earlier reaching 1.50 basis points. It is the first time it has turned positive since July 2022.
An inversion in this part of the yield curve typically indicates that a recession is likely in the next one-to-two years, though this inversion has lasted longer than in previous episodes.
The curve usually turns positive before a downturn begins.
TUMBLING STOCKS, GEOPOLITICAL CONCERNS ADD BID FOR BONDS
Tumbling stock markets and concerns about increasing geopolitical tensions in the Middle East have added to demand for safe haven U.S. government debt in recent days.
U.S. stocks have also been hurt by some recent weak earnings outlooks and stretched valuations.
"The move over the last two days in particular, that's not as much driven by fundamentals as it is by the correction in U.S. equity markets," said Michael Weidner, co-head of global fixed income at Lazard Asset Management.
Traders unwinding popular trades in which they sold the Japanese yen and bought U.S. assets has also increased fears of large portfolio liquidations across asset classes.
Upcoming inflation releases and the jobs report for August will be key to whether the Fed makes a larger cut in September, assuming it doesn't act before then.
"It depends on the August payroll number, if it’s similarly weak (to July) then there’s a good case for a bigger cut,” said Jim Caron, CIO, cross-asset solutions at Morgan Stanley Investment Management.
Yields may also be pulled higher by new Treasury supply this week. The Treasury Department will sell $125 billion in coupon-bearing debt, including $58 billion in three-year notes on Tuesday, $42 billion in 10-year notes on Wednesday and $25 billion in 30-year bonds on Thursday.
U.S. yield curve disinverts as traders bet on rate cuts https://reut.rs/3A8fn4m
Reporting By Karen Brettell; Additional reporting by Harry Robertson, Ankur Banerjee and Lisa Pauline Mattackal; Editing by Nick Zieminski, Sharon Singleton, William Maclean
Mga Kaugnay na Asset
Pinakabagong Balita
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.
