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U.S. bond yields fell on Wednesday after weaker-than-expected data out of China raised global economic growth concerns.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.921%
fell 2.9 basis points to 4.896%. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.882%
retreated 1.4 basis points to 3.845%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.899%
was barely changed at fell 3.870%.
What’s driving markets
A weaker-than-expected survey of China’s service sector earlier on Wednesday has sparked renewed concerns about the pace of global economic growth and encouraged buyers of fixed income assets, pushing Treasury yields lower.
The moves come as traders wait for the minutes of the Federal Reserve’s June policy meeting, due for publication at 2 p.m. Eastern.
They may also have an eye on the monthly employment report on Friday, a data point that should color the Fed’s thinking on any additional monetary tightening.
Markets are pricing in an 86% probability that the Fed will raise interest rates by 25 basis points to a range of 5.25% to 5.50% after its meeting on July 26, according to the CME FedWatch tool.
The central bank is not expected to take its Fed funds rate target back down to around 5% until May 2024, according to 30-day Fed Funds futures.
What are analysts saying
“We expect the U.S. yield curve to continue to flatten throughout summer. If inflation eases slowly and the economy remains resilient, long-term yields will continue to rise, with front-term yields soaring at a faster space, contributing to a further inversion of the yield curve,” said Althea Spinozzi, senior fixed income strategist at Saxo Bank.
“However, weaker-than-expected data on growth might provoke drops on the longer part of the yield curve providing an even faster flattening. Today the focus is on the FOMC minutes, and tomorrow it will turn on jobs data with the JOLTS numbers and non-farm payrolls on Friday. Ten-year Treasury yields remain in an uptrend on their way to 4%, and two-year yields are rising towards 5% as markets push expectations for rate cuts further in the future,” Spinozzi added.
