U.S. bond yields experienced an upward shift early Thursday as optimism surrounding a potential summer interest rate cut by the Federal Reserve was tempered to some extent.
What’s happening
- The yield on the 2-year Treasury BX:TMUBMUSD02Y climbed by 1.4 basis points to 4.859%.
- The yield on the 10-year Treasury BX:TMUBMUSD10Y rose 2.6 basis points to 4.508%.
- The yield on the 30-year Treasury BX:TMUBMUSD30Y added 1.8 basis points to 4.662%.
What’s driving markets
Recent enthusiasm for the possibility of Federal Reserve rate cuts being moved up to the summer has slightly diminished in the past few sessions.
Following a peak of 4.7% in early May, the 10-year Treasury yield experienced a decline, reaching 4.43% at one point on Tuesday. This drop was a result of Federal Reserve Chair Jerome Powell’s comments, which were less hawkish than anticipated, and the jobs data, which was softer than expected.
Nevertheless, there has been a partial reversal in that trend following recent statements from Minneapolis Fed President Neel Kashkari and Boston Fed President Susan Collins. Kashkari stated on Tuesday that he couldn’t dismiss the possibility of the central bank needing to raise interest rates again, while Collins mentioned on Wednesday that the U.S. economy should slow down in the coming months to alleviate price pressures.
As of early Thursday, the benchmark bond yield had risen by 2.6 basis points during the session and was trading at 4.508%.
The sale of $42 billion in 10-year notes by the Treasury on Wednesday afternoon saw relatively modest demand, which in turn exerted some upward pressure on yields. Traders will be closely monitoring Thursday’s $25 billion offering of 30-year paper, scheduled for 1 p.m.
The release of China’s trade data on Thursday exceeded expectations, which has sparked optimism about the global economy and could potentially lead to higher yields.
On Thursday, the United States will release its latest data, which includes the weekly initial jobless benefit claims at 8:30 a.m. In the Eastern region, experts predict that there will be 214,000 claims, compared to 208,000 claims in the previous week.
San Francisco Fed President Mary Daly is scheduled to give a speech at 2 p.m. at George Mason University.
Prior to these events, it is worth noting that the market is currently indicating a high likelihood of the Federal Reserve maintaining interest rates at their current range of 5.25% to 5.50% after its upcoming meeting on June 12th. Additionally, there is a significant probability of the Fed keeping rates unchanged after its gathering on July 31, as indicated by the CME FedWatch tool.
There is a 65.7% probability that there will be a rate cut of at least 25 basis points by the next meeting in September. Based on 30-day Fed Funds futures, it is anticipated that the central bank will lower its Fed funds rate target to approximately 4.98% by December 2024.
The Bank of England is expected to leave its key interest rate unchanged at 5.25% on Thursday, but will also provide updated economic and inflation projections. Futures market currently expect the BOE to begin trimming borrowing costs, by 25 basis points, by either its June or August meeting. The 10-year gilt yield BX:TMBMKGB-10Y was up 1.4 basis point to 4.157%.
