By Gertrude Chavez-Dreyfuss
NEW YORK- US Treasury yields slipped in choppy trading on Tuesday as weak confidence numbers and a lower-than-expected business conditions index nudged up the possibility that the Federal Reserve could do another outsized rate cut at the November policy meeting.
A decent auction of US two-year notes added to the bid on Treasuries, pushing their yields lower, as demand for front-end notes increased with the Fed launching its easing cycle last week.
Angelo Manolatos, macro strategist, at Wells Fargo said shorter-dated debt is in great demand overall as investors are more “confident that inflation is much calmer” and growth including labor market indicators look to be slowing down as well.
“The Fed cut 50 basis points last week and it could continue to ease at that very large increment…So from an investor standpoint, the risk of higher rates is diminishing and with that, it looks a lot better to be long Treasuries.”
US rate futures have priced in a 62 percent chance of another super-sized rate cut of 50 bps at the November meeting, up from 54 percent on Monday, LSEG calculations showed. The more standard 25-bp easing showed a 38 percent probability on Tuesday. For the next two Fed meetings, rate futures are implying more than 80 bps in cuts.
Earlier in the session, Treasury yields were higher across the board, supported by elevated risk appetite after China introduced broad stimulus measures to support its faltering economy and solid US housing data.
US yields on seven-year notes to 30-year bonds hit fresh three-week highs, while the yield curve again hit its steepest level since June 2022, touching that milestone for a fifth consecutive session.
But that all changed with the release of the soft Conference Board consumer sentiment survey. US consumer confidence unexpectedly fell in September. The Conference Board’s consumer confidence index dropped to 98.7 this month from an upwardly revised 105.6 in August. The decline was the largest since August 2021. Economists polled by Reuters had forecast the index rising to 104.0. – Reuters
