U.S. Treasury yields swung from declines to advances Thursday morning even as fed funds futures traders boosted the chances of no further interest-rate action by the Federal Reserve this year.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 2.3 basis points to 5.007% versus 4.984% on Wednesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
advanced 3.1 basis points to 4.279% from 4.248% Wednesday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
rose 4.2 basis points to 4.377% from 4.335% late Wednesday.
What’s driving markets
As of Thursday morning, traders priced in a 97% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% at its policy meeting on Sept. 20. Meanwhile, the chance of the central bank also standing pat at the subsequent meeting in November inched up to 63.7%, according to the CME FedWatch Tool.
And traders boosted the likelihood of no action in December to 59.9% as they continued to absorb Wednesday’s mixed reading on the August consumer price index.
Data released on Thursday showed the August producer price index climbed a better-than-expected 0.7% last month. Separately, retail sales advanced 0.6% in August and weekly initial jobless benefit claims rose by 3,000 to 220,000 in the week that ended Sept. 9.
Meanwhile, the benchmark German 10-year bund yield
BX:TMBMKDE-10Y
was down 2.9 basis points at 2.625% after the European Central Bank lifted its interest rates by 25 basis points and signaled that may be the last hike. Thursday’s decision marked the 10th straight rate hike by the ECB.
What analysts are saying
“The ECB hiked rates 25bps today, taking the deposit rate to 4% in what can only be characterized as a dovish hike,” said James Rossiter, head of global macro strategy, and others at TD Securities. “Key to the policy statement was that the Governing Council ‘considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.’ This is a clear sign that absent any further notable upside surprises to inflation and its drivers, they are done hiking rates.”
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