Ten- and 30-year Treasury yields ended at three-week lows on Wednesday, after cooler-than-forecast U.K. inflation bolstered the narrative that central banks will soon be done raising interest rates.
What happened
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.828%
was unchanged at 4.753% versus Tuesday’s level. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.845%
retreated 4.7 basis points to 3.741% from 3.788% Tuesday afternoon. The 10-year yield is down seven of the past eight trading sessions. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.901%
fell 6.1 basis points to 3.838% from 3.899% late Tuesday. The 30-year rate is down six of the past seven trading days. - Wednesday’s levels are the lowest for the 10- and 30-year rates since June 28, based on 3 p.m. Eastern time figures from Dow Jones Market Data.
What drove markets
Data from the U.K. showed consumer price inflation rose in June to 7.9%, its lowest level in more than a year and below economists’ forecasts — prompting a dip in government bond yields in Europe and the U.S.
Global bond bulls jumped on the report from Britain as further evidence that inflationary pressures — though still high in the U.K. — are waning in developed economies like the U.S., and that this will help central banks to stop raising borrowing costs soon.
Markets have priced in a 99.8% probability that the Federal Reserve will raise its policy interest-rate target by 25 basis points to between 5.25%-5.5% next Wednesday, according to the CME FedWatch Tool. The chances of another hike of that size, which would take the fed funds rate target to 5.5%- 5.75%, by November was seen at 28.3%.
The central bank is expected to take its fed funds rate target back down to around 5% or even lower next year.
In U.S. economic updates on Wednesday, housing starts fell to a 1.43 million annual pace last month from 1.56 million in May, as homebuilders sharply slowed down on the start of construction on new single-family homes. Building permits, a sign of future construction, fell 3.7% to a 1.44 million rate.
Read: Why one analyst thinks possible recession could still arrive by February
What analysts are saying
“More evidence that inflation is falling back in most economies has pushed government bond yields down across developed markets (DMs) over the past couple of weeks,” said Hubert de Barochez, a markets economist at Capital Economics.
“We think that disappointing growth, as well as central banks eventually cutting rates by more than investors currently expect, will put even more downward pressure on yields over the next two years or so,” de Barochez wrote in a note on Wednesday.
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