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Benchmark Treasury yields early Wednesday reversed a small portion of their latest slide as traders eyed the ADP private sector jobs report.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
eased by 1.7 basis points to 4.909%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 2.4 basis points to 4.149%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
added 2.4 basis points to 4.256%.
What’s driving markets
Benchmark Treasury yields are inching higher following a sharp fall over the past week. Having hit a 16-year peak of 4.37% on August 22, the 10-year yield on Tuesday touched 4.11% after data showing a weakening U.S. jobs market and declining consumer confidence.
“Signs of America’s cooling economy have raised hopes that the pause button will be pushed on punishing interest rate hikes,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
That narrative will be tested by more data in coming days. The ADP private sector jobs report for August, will be published at 8:15 a.m. Eastern on Wednesday, followed by the PCE inflation reading on Thursday, and Friday’s nonfarm payrolls report.
Until then, markets are pricing in an 87% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20, according to the CME FedWatch tool.
The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in November is priced at 44%.
The central bank is not expected to take its Fed funds rate target back down to around 5% until July 2024, according to 30-day Fed Funds futures.
Other U.S. economic updates set for release on Wednesday include the revision of second-quarter GDP and the advanced reading of trade balance in goods, retail and wholesale inventories for July. Pending home sales in July will be published at 10 a.m.
What are analysts saying
“[The] JOLTS report was an answer to Fed prayers. With 1.5 open jobs per unemployed worker and quit rates down to pre-pandemic levels, the report offers more evidence of a cooling the economy. At the same time, low, stable layoff rates imply rising odds of a soft landing in the absence of wide-scale workforce reductions,” said Ronald Temple, chief market strategist at Lazard.
