By Alden Bentley, Gertrude Chavez-Dreyfuss
NEW YORK- The benchmark US Treasury 10-year yield topped 4 percent for the first time in more than two months on Monday, while a widely watched part of the yield curve briefly inverted, as markets reduced bets of another super-sized rate cut following Friday’s strong US jobs report.
Investors were also prepping for $119 billion in auctions of the US three-year and 10-year notes, as well as 30-year bonds. That has led to some concession, which means market participants have been selling Treasuries, pushing their prices lower and yields higher, and buying them back later after the auction.
In afternoon trading, the 10-year yield rose 3.9 basis points (bps) from late Friday to 4.019 percent, advancing for a fourth straight session after hitting its highest level since late July of 4.033 percent. It rose 13 bps on Friday, its biggest one-day rise since June 30, after news the US economy added 254,000 jobs in September, above the expectations of economists polled by Reuters. The unemployment rate surprisingly fell to 4.1 percent from 4.2 percent.
The US two-year yield which is more sensitive to changes in monetary policy expectations, reached its highest since Aug. 19 at 4.0270 percent and was up 7.4 bps at 4.006 percent. It rose almost 22 bps on Friday, its biggest daily rise since April.
“At this point, we are still in a cutting cycle. From the market’s perspective, I still believe the Fed is going to deliver a couple more eases this year,” said Angelo Manolatos, macro strategist, at Wells Fargo. “What really ends up being the question is: how much are they cutting in 2025? There has been a rethink of the 25-bp easing from the market.”
The US rate futures market has priced in an 88 percent chance of a 25-bp cut next month, and 12 percent odds that the Fed will pause at according to LSE calculations. The market overall has also factored in 50-bp of easing for the remainder of the year.
Meanwhile, the bigger increase in yields on the two-year compared to that of the 10-year has briefly inverted the curve, flattening overall from a steepening scenario. The yield spread between the two-year and the 10-year hit minus 1.4 bps. It was last at positive 2.3 bps
The flattening of the curve suggested that the market has reduced expectations of an aggressive rate-cutting cycle. – Reuters
