HomeFinanceTreasury yields nudge higher as bets on July rate hike rise

Treasury yields nudge higher as bets on July rate hike rise


Bond yields moved higher on Thursday as traders continued to discount debt-ceiling negotiations and Federal Reserve policy trajectory.

What’s happening

  • The yield on the 2-year Treasury

    added 3.7 basis points to 4.419%. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury

    rose 1.5 basis points to 3.765%.

  • The yield on the 30-year Treasury

    climbed less than 1 basis point to 3.998%.

What’s driving markets

Debt-ceiling concerns and Federal Reserve policy continue to impact different parts of the market for U.S. government paper.

The yield on the 1-month Treasury bill

maturing on June 20th eased 4.4 basis points to 5.667% but remains just shy of recent highs after ratings agency Fitch placed Washington’s AAA credit rating on watch for a possible downgrade as the debt-ceiling deadline looms.

The prospect of a technical default by the world’s largest economy — possibly as soon as the start of June — saw traders dump Treasury bills maturing on June 1st, pushing yields up to multi-decade highs of 7.226% by late Wednesday, according to Tradeweb data.

Yield on U.S. Treasury bill expiring June 1st. Source: Tradeweb.

Meanwhile, investors were also parsing the latest Fed-meeting minutes, and commentary by Fed officials, and increasing bets that the central bank may resume tightening policy after skipping a rate rise next month.

Markets are pricing in a 66% 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.

But the chances of a 25 basis point increase on July 26 have risen from 5.4% a month ago to 45.5% now.

U.S. economic updates set for release on Thursday include the weekly initial jobless claims data and the second reading of first quarter GDP, both at 8:30 a.m. Eastern. Pending home sales for April will be published at 10 a.m..

Fed officials making comments include Richmond Fed President Tom Barkin speaking at 9:50 a.m. and Boston Fed President Susan Collins talking at 10:30 a.m..

What are analysts saying

Here’s Mohamed El-Erian, President of Queens’ College, Cambridge University, and an advisor to Allianz and Gramercy, on the fallout from Fitch’s warning.

Source: Twitter


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