The Market is Content with Long-term Treasury Yields

The Market is Content with Long-term Treasury Yields

The Market is Content with Long-term Treasury Yields

The 2-year US Treasury yield rose Tuesday to its highest level in almost 10 years, with the yield curve at its flattest in nearly 11 years, as Fed Chairman Jerome Powell’s upbeat remarks on the economy supported traders’ view of more rate hikes.

Chairman Powell, in testimony about the economy and monetary policy before a Senate panel, said: “With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years.

Chairman Powell downplayed the current friction between The Trump Administration and major US trade partners as a risk to business and consumer activities.

The market is quite content with where long-term yields are.

Yield Check

  • 2-yr: +1 bpt at 2.61%
  • 5-yr: +1 bpt at 2.76%
  • 10-yr: Unch at 2.86%
  • 30-yr: Unch at 2.97%

The spread between 2-year and 10-year Treasury yields was 24.10 bpts, hanging at its tightest level since July 2007.

Interest rates futures implied traders saw about an 89% chance the Fed would lift its target range on Key interest rates by a quarter point, to between 2.00 and 2.25%, at its 25-26 September policy meeting, CME Group’s FedWatch program showed.

They suggested traders priced in about a 63% likelihood of another rate hike at the Fed’s 18-19 December policy meeting.

Signs of a slight pick-up in business and consumer activities in Q-2 had stoked bets the Fed may consider a faster pace of rate hikes. But the consensus view remains that the Fed would refrain from turning more aggressive on hiking rates to avert inverting the yield curve.

After his appearance in front of the Senate Banking Committee, Chairman Powell will complete his semiannual testimony before the House Financial Services Committee at 10:00a EDT Wednesday.

Stay tuned…

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