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US Treasury Yields in Focus as Investors Assess Economic Data

Treasury yields were lower on Tuesday after robust manufacturing data appeared to reduce the likelihood of the U.S. Federal Reserve cutting interest rates in June.

The rate on the 10-year Treasury note ticked lower by around 1 basis point to 4.315%, while the rate on the 2-year note was 2 basis points lower at 4.693%. Yields and prices move in opposite directions and one basis point equals 0.01%.

It comes shortly after manufacturing in the U.S. expanded for the first time in 17 months. The ISM manufacturing index rose to 50.3, up from 47.8 in February and significantly better than the 48.1 Dow Jones consensus estimate. The index measures the percentage of companies reporting expansion against contraction, so anything over 50 indicates growth.

Markets interpreted the unexpected return of U.S. manufacturing growth “as reducing the chances of meaningful Fed rate cuts,” Dutch bank ING said in a research note.

Last month, the U.S. central bank left interest rates unchanged for the fifth consecutive time, in line with expectations, keeping its benchmark overnight borrowing rate in a range of 5.25%-5.5%. The Fed also said at the time that it still expects three quarter-percentage point cuts by the end of the year.

The message fueled a market rally in the U.S. and overseas, with benchmark indexes climbing to fresh record highs since.

Steven Blitz, chief U.S. economist at TS Lombard, told CNBC’s “Squawk Box Europe” on Thursday that the likelihood of one or no Fed rate cuts this year is looking “pretty good.” Blitz said markets would continue to march higher, however, even if the Fed decides against easing policy this year.

“There are 20 or so individual Federal Reserve speeches this week and the market is likely thinking that [Monday’s] outcome will make officials wary of committing to significant policy easing,” James Knightley, chief international economist at ING, said in a note published Monday.

“Nonetheless, there are also a lot of jobs numbers through the week, culminating in Friday’s non-farm payrolls figures and unemployment rate. It could be a choppy week of trading ahead,” he added.

— CNBC’s Jeff Cox contributed to this report.

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