Introduction
Bond yields experienced an upward trend on Monday, with benchmark rates reaching near 15-year highs. Market participants eagerly awaited a speech by Fed Chair Jay Powell later in the week for potential insights.
Key Developments
- The yield on the 2-year Treasury (BX:TMUBMUSD02Y) saw a modest increase of less than 1 basis point, reaching 4.953%. It is important to note that bond yields move inversely to prices.
- The yield on the 10-year Treasury (BX:TMUBMUSD10Y) rose by 3.8 basis points to 4.290%.
- The yield on the 30-year Treasury (BX:TMUBMUSD30Y) surged by 4.7 basis points, reaching 4.427%.
Factors Influencing Market Trends
The upward trajectory of bond yields persisted at the start of the week. The 30-year Treasury yield even reached a fresh 12-year high of 4.44%, while the 10-year note approached its highest rate since 2008. These movements reflect investors' concerns regarding increased supply and recent positive economic data.
Market participants eagerly anticipate Federal Reserve Chair Jay Powell's upcoming speech at the Jackson Hole symposium on Friday. They are particularly interested in whether the recent strong economic activity indicators have influenced the Federal Reserve's outlook.
Interest Rates and Market Expectations
According to the CME FedWatch tool, markets are currently pricing in an 89% probability that the Federal Reserve (Fed) will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20.
Looking ahead to the subsequent meeting in November, there is a 32% chance of a 25 basis point rate hike to a range of 5.50% to 5.75%.
Based on 30-day Fed Funds futures, it is anticipated that the central bank will not lower its Fed funds rate target back down to around 5% until June 2024.
No significant economic datapoints are scheduled for release on Monday.
Analyst Insights
Ahead of the much-anticipated Jackson Hole event at the end of the week, the U.S. Treasury is expected to conduct the sale of 30-year TIPS on Wednesday and 20-year bonds on Thursday. These particular maturities are generally not favored by investors, especially the recently reintroduced 20-year notes post-pandemic.
Althea Spinozzi, senior fixed income strategist at Saxo Bank, highlights that the focus will be on both auctions' bidding metrics and whether demand remains strong despite an increase in supply. Currently, U.S. Treasury yields are trending upwards, suggesting that higher yields might be on the horizon.
