Treasury yields were mostly higher Monday morning amid hopes for a U.S. debt-ceiling agreement, which softened demand for government bonds.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
3.995%
was 4%, little changed from 4.002% on Friday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.504%
advanced to 3.494% from 3.461% as of Friday afternoon. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.835%
climbed 5.5 basis points to 3.831% from 3.776% late Friday.
What’s driving markets
Hopes for a U.S. debt-ceiling resolution were damping demand for the perceived safety of government bonds, nudging yields slightly higher.
A second round of debt-ceiling talks between the White House and congressional leaders appears set for Tuesday, President Joe Biden said Sunday. Biden described himself as optimistic and said both sides have a desire to reach an agreement.
News on Friday that U.S. consumers’ inflation expectations over the next five years have risen to 3.2%, their highest since 2011, continued to pressure yields to the upside, too, on expectations this may make it more difficult for the Federal Reserve to ease its monetary tightening policy next month.
Markets are pricing in an 87% probability that the Fed will leave interest rates unchanged at between 5%-5.25% on June 14, according to the CME FedWatch tool. The central bank is expected to take its fed-funds rate target back down to between 4.25%-4.5% by December, according to 30-day Fed Funds futures.
In U.S. economic updates on Monday, the New York Fed’s Empire State manufacturing survey plummeted to negative 31.8 in May, further below zero than economists had expected.
What analysts are saying
Treasurys “were little changed overnight, retaining Friday’s selloff as rates settle into an all too familiar range,” with the 10-year rate near 3.5%, said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a note.
With debt-ceiling talks scheduled for Tuesday, “there is renewed optimism as to the prospects for a resolution — albeit one of a nature yet to be revealed or digested by the U.S. rates market,” they wrote.
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