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Bond report: U.S. Treasury yields edge higher as Fed minutes loom, growth worries recede

Bond yields edged higher on Tuesday as risk appetite stabilized and energy prices hampered demand for fixed-income assets.

What happened
  • 2-Year Treasury TMUBMUSD02Y, 3.232%
    increased 1.7 basis points to 3.195%. Yields move in the opposite direction of prices.

    Yield of 10-year Treasury TMUBMUSD10Y, 2.830% rose 1 basis point to 2.796%.

    Yield of 30-year Treasury TMUBMUSD30Y, 3.127% fell 1 basis point to 3.093%.

    10-year U.S. Treasury yields hit 52-week highs from mid-June Down 69 basis points, but still up 129 basis points so far this year.

    What drives the market

    Bond buyers are disadvantaged, driving yields Slightly higher as the previous session’s rebound – supported by very weak U.S. East Coast manufacturing surveys and signs of a slowdown in China’s economy – showed signs of fading.

    “After last week’s U.S. economic activity and inflation data gave a ‘Goldilocks’ feel, the Chinese and U.S. economic data that started this week are clearly ‘too cold’ for the world Brian Daingerfield, head of G10 FX strategy at NatWest Markets, said.

    The 10-year to 2-year spread is around minus 40 basis points, which means yields are still deeply inverted, signaling a coming Economic downturn.

    Earlier this week, bond yields came under further pressure as oil prices fell sharply, boosting hopes that the U.S. will witness a peak inflation in June.

    News on both fronts changed on Tuesday. Crude oil prices stabilized and news from China suggesting Beijing was prepared to support the struggling real estate sector has eased global growth concerns.

    traders will next have to deal with U.S. data due on Tuesday, which includes July housing starts and permits at 8:30AM ET and July industrial production at 9:15AM ET.

    Meanwhile, in the background lurks in the background the latest update on the minutes of the Fed’s most recent monetary policy meeting.

    Mizuho Securities U.S. Economists Alex Pell and Steven Markets may be unprepared for the tone the central bank will take, Ridgeto said.

    “We expect the minutes of the Fed’s July meeting to be released on Wednesday to be fairly hawkish. They said in a note to clients that forward guidance on a meeting-by-meeting basis has stopped, but not overall.

    “Despite the 75 basis point Fed rate hike, the Fed has spent much of the past few weeks in response, with hawkish and dovish speakers trying to dispel market concerns that the Fed will not be able to Strategists at Mizuho added.

    Markets are pricing in a 50-basis-point probability of a Fed rate hike in a range of 2.75% to 3.00% for its meeting at 9 Ends March 21. According to Fed Funds Futures, the Fed’s borrowing costs are expected to fall to 3.63% by April 2023.

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