Treasury yields rose a touch on Thursday as broader market risk appetite damped demand for government paper.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.186%
were barely changed at 4.169%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.599%
rose 1.7 basis points to 3.586%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.888%
fell 1.8 basis points to 3.873%.
What’s driving markets
As equity markets rallied — with investors becoming more confident of a U.S. debt-ceiling deal — demand for sovereign bonds softened, pushing up yields.
Easing anxiety about the U.S. regional banking sector was also seen curtailing flows into perceived havens, such as government bonds, with investors reasoning the calmer conditions in the financial sector allowed the Fed to keep interest rates high for longer.
Markets are pricing in a 72.7% probability that the Fed will leave interest rates unchanged at a range of 5.0% to 5.25% after its meeting on June 14, according to the CME FedWatch tool.
The central bank is expected to take its Fed funds rate target back down to 4.6% by December, according to 30-day Fed Funds futures.
U.S. economic updates set for release on Thursday include the weekly initial jobless claims report and the Philadelphia Fed factory survey for May, both due at 8:30 a.m. Eastern. The April existing home sales and leading economic indicators reports will be published at 10 a.m.
Fed Governor Philip Jefferson, who has been nominated to become vice chair, is due to speak at 9:15 a.m.
What are analysts saying
“[T]he more positive news [on the debt ceiling] of the last 24 hours meant that investors grew more sceptical that the Fed would be pivoting towards rate cuts this year. For instance, the rate priced in for the December meeting rose a further +5.4bps yesterday to 4.538%. And there’ve even been a few noises about another rate hike at the next meeting in June,” said Henry Allen, strategist at Deutsche Bank in a morning note.
“We should stress this isn’t the consensus view, but at one point intraday, futures went as far as pricing in a 30% chance of a June hike, which is the highest since the Fed’s most recent decision a couple of weeks ago. By the end of the session that was back down to 20%, so it’ll be interesting to hear from various Fed speakers over the next couple of days to see what their views on the matter are,” Allen added.
