US Treasury yields fall as weak manufacturing data persists
ISM manufacturing PMI rose to 47.2 in Aug, still indicating contraction
Fed expected to cut rates by at least 25 bps at September meeting
Two-year Treasury yield fell 6.2 bps, biggest drop since August 23
Updated at 2:33 p.m. ET/1833 GMT
By Chuck Mikolajczak
NEW YORK, Sept 3 (Reuters) -U.S. Treasury yields fell on Tuesday, with the benchmark 10-year note set to break a five-session streak of gains, after data signaled activity in the manufacturing sector remains soft.
The Institute for Supply Management (ISM) said its manufacturing PMI rose to 47.2 in August from an eight-month low of 46.8 in July, and remained below the 50 reading to indicate contraction for the fifth straight month.
"The bounce in manufacturing from July’s abysmal reading wasn’t all that great. New orders dropped, which doesn’t augur well for a future rebound in activity," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
"The Fed cares about the labor market, not the manufacturing sector. It will take service sector weakness to scare the Fed into doing more than a 25 basis point cut and that just doesn’t seem to be in the cards for now."
Investors will get a host of data on the labor market this week, culminating in Friday's key government payrolls report.
The yield on the benchmark U.S. 10-year Treasury note US10YT=RR fell 5.7 basis points (bps) to 3.854%. The yield snapped a two-week streak of declines last week as economic data boosted expectations the Fed was more likely to opt for a smaller cut of 25 basis points at its Sept. 18 policy announcement.
Markets have fully priced in a rate cut of at least 25 bps at the upcoming meeting, with expectations for a cut of 50 bps climbing to 37% after the data, up from 30% in the prior session, according to CME's FedWatch Tool.
The yield on the 30-year bond US30YT=RR fell 5.3 basis points to 4.143%.
Recent comments from Fed policymakers signal the majority are ready to support a rate cut by the central bank at its September meeting.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a negative 3.8 basis points.
The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 3.7 basis points to 3.865%, on track for its biggest daily drop since Aug. 23.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at 1.984% after closing at 2.034% on August 30.
The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.112%, indicating the market sees inflation averaging about 2.1% a year for the next decade.
ISM manufacturing PMI https://reut.rs/3APIyJF
Reporting by Chuck Mikolajczak; Editing by Alexander Smith and Jonathan Oatis
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
