U.S. bond yields were little changed on Tuesday as investors contemplate a barrage of U.S. jobs data over the next few days.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.899%
rose 1.3 basis points to 4.870%. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
4.025%
was barely changed at 3.959%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
4.062%
added less than 1 basis point to 4.013%.
What’s driving markets
Investors will be keeping an eye out for a batch of U.S. labor-related data over the next few days. All through its monetary tightening cycle that began in March 2022, the Federal Reserve has noted that a tight jobs market is contributing to inflationary pressures.
The JOLTS job openings report for July will be published on Tuesday at 10 a.m. Eastern, followed on Wednesday by the ADP private sector jobs report for July, the weekly initial unemployment claims on Thursday, and the monthly nonfarm payrolls report on Friday.
Markets are pricing in a 82% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20, according to the CME FedWatch tool.
The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in November is priced at 29%.
The central bank is not expected to take its Fed funds rate target back down to around 5% until May 2024, according to 30-day Fed Funds futures.
Other U.S. economic updates set for release on Tuesday include the S&P manufacturing PMI for July, due at 9:45 a.m., and the ISM manufacturing report for July, alongside June construction spending at 10 a.m..
What are analysts saying
Jim Reid, strategist at Deutsche Bank, considered some of the latest Fedspeak, in the form of comments on Monday from Chicago Fed President Austan Goolsbee.
“A known dove, Goolsbee emphasised that the most recent inflation prints were ‘fabulous news’ and that the U.S. was now on what he called the ‘golden path’. However, he was careful to note that the Fed still needed to ‘play by ear’ and did not commit to a view on the September meeting, with the potential for cuts only arising when inflation recedes,” Reid wrote in a morning note Tuesday.
“There was little change to market expectations following Goolsbee’s interview…Overall, the market is anticipating just over a third of another hike this Fed hiking cycle, and 115bps of rate cuts in total by December 2024,” he added.
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