Bond Yields See Modest Relief

by Warren Seah

The 2-year yield on the Treasury fell below 5% on Thursday, offering some relief amid concerns over a potential increase in interest rates by the Federal Reserve.

Yield Movements

  • The yield on the 2-year Treasury (BX:TMUBMUSD02Y) dropped to 4.99%, down by 4.2 basis points. It’s important to note that yields move inversely to prices.
  • The yield on the 10-year Treasury (BX:TMUBMUSD10Y) stood at 4.27%, experiencing a decrease of 1.3 basis points.
  • Lastly, the yield on the 30-year Treasury (BX:TMUBMUSD30Y) was at 4.35%, down by 0.5 basis points.

Market Drivers

On Wednesday, yields increased, especially at the short-end, following a remarkably strong reading of the ISM services index. This happened just before the much-anticipated consumer price index report next week.

However, the bond market’s larger message remains concerning for the U.S. economy.

David Berson, the chief U.S. economist at Cumberland Advisors, points out, “The yield spread between 3-month Treasury bills (BX:TMUBMUSD03M) and 10-year Treasury notes continues to be more negative than at any time other than during the 1979-81 period. Recessions have always occurred when this spread has been as wide as it is today, although the long and variable lags of monetary policy changes make the timing of the likely downturn uncertain.”

What’s Next?

Thursday will see the release of weekly jobless claims and a revised look at productivity. Additionally, several Fed officials, including New York Fed President John Williams, will be speaking.

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