US yields slide as markets price in near-certainty of Fed cut in November
US 10-year yield posts weekly gain of nearly 10 bps
US 30-year hits 10-week high, up for eight straight days
US two-year yield on track for biggest daily fall since late September
US yield curve bull-steepens after data
US rate futures price in 91% chance of 25-bps cut in November
Adds new comment, weekly milestone, bullets, graphic; updates prices
By Gertrude Chavez-Dreyfuss and Alden Bentley
NEW YORK, Oct 11 (Reuters) -U.S. Treasury yields slipped on Friday after an unchanged producer prices data reading that was trending lower and a consumer-sentiment report maintained chances of an interest-rate cut by the Federal Reserve at next month's monetary-policy meeting.
The Treasuries market is closed on Monday for Columbus Day.
The unchanged reading in the producer price index for final demand last month followed an unrevised 0.2% gain in August, the Labor Department said. Economists polled by Reuters had forecast the PPI edging up 0.1%. In the 12 months through September, the PPI increased 1.8%, after climbing 1.9% in August, more than the expected 1.6% rise.
The data followed news on Thursday that consumer prices rose slightly more than expected in September, lifted by higher food costs. The two reports supported views the Federal Reserve would cut interest rates again by the more standard 25 basis points, after September's aggressive 50-bps reduction.
Recent U.S. economic data is "creating confusion and will create doubt" as to what the Fed does from here, said Christian Hoffmann, head of fixed income at Thornburg Investment Management in Santa Fe, New Mexico, with $46 billion in assets under management.
"The market is still pricing in a high probability that we cut at all because the Fed has built a shrine to data dependence and unless you want to tear that down, the two important data points (the consumer price index and the strong nonfarm payrolls report) that we got make a tough case for cutting at all," Hoffmann noted.
He pointed out that the labor market "does not feel like it's falling off a cliff," and it's "certainly too soon to declare victory on inflation."
The fed funds futures have priced in a 91% chance of a 25-bps easing next month, with a 9% probability that the Fed will keep the policy rate in the 4.75%-5.0% target range, according to LSEG calculations.
The futures market also showed about 48 bps of easing this year, down from more than 50 bps early this week. It priced in about 102 bps of Fed cuts in 2025, a steep decline from the roughly 200 bps of reductions estimated prior to last Friday's blowout U.S. nonfarm payrolls report.
In afternoon trading, the yield on benchmark U.S. 10-year notes US10YT=RR was off 2.1 bps from late Thursday at 4.073%. It rose for a fourth-straight week, with gains of 9.6 bps.
A separate survey from the University of Michigan on Friday showed its preliminary consumer sentiment index slipped to 68.9 in October from a final reading of 70.1 in September. Economists had forecast a preliminary reading of 70.8.
Consumers' 12-month inflation expectations rose to 2.9% from 2.7% last month.
U.S. yield stayed lower after the consumer sentiment data
The U.S. 30-year bond US30YT=RR yield was flat at 4.386% US30YT=RR, hitting a 10-week high earlier in the session of 4.421% and rising for eight straight days. For the week, it gained 12 bps.
On the short end of the curve, the two-year note US2YT=RR yield, which is typically sensitive to Fed policy expectations, fell 5.4 bps to 3.945%, on track for its biggest daily fall since Sept. 27. On the week, the two-year yield has dropped about 6.7 bps.
The yield curve has bull-steepened, with the spread between U.S. two- and 10-year yield at 13.2 bps US2US10=TWEB. In a bull-steepening, short-term rates fall more sharply than those on the long end, suggesting more rate cuts are expected.
US yield curve https://reut.rs/4dE1qcd
Reporting by Alden Bentley; Editing by Andrea Ricci, Chris Reese and Rod Nickel
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.
