NEW YORK- US Treasury yields fell on Tuesday, in line with declines in Europe and the UK, as investors priced in market expectations that the Federal Reserve is near the end of its rate-hiking cycle, with some sectors of the economy having shown signs of moderation.
After a blackout period leading up to the Fed’s policy announcement last Wednesday, central bank officials are back in full force as this week’s big focus, led by Fed Chair Jerome Powell’s congressional testimony.
“US yields are being driven by lower yields in Europe and the UK. Globally, we’re nearing the end of the tightening cycles in Europe, Britain, and US ,” said Tom di Galoma, co-head of global rates trading at BTIG in New York.
“I think the Fed is done. I don’t believe the Fed is going to hike rates any further because they’re going to see a fairly decent drop in inflation. Maybe the Fed does another 25 basis points (bps) between now and the end of the year, but I don’t think they’re going to do much more than that.”
Earlier, US Treasury yields briefly pared losses after data showed housing starts surged last month by the most in more than three decades.
Single-family housing starts, which represent the bulk of homebuilding, rose 21.7 percent to a seasonally adjusted annual rate of 1.631 million units last month from April’s downwardly revised 1.34 million, data showed. May’s rate was the highest since April 2022, suggesting the housing market could be turning around after a slump caused by the Fed’s aggressive rate hikes.
In afternoon trading, the yield on 10-year Treasury notes was down 4.4 (bps) at 3.724 percent.
US 30-year bond yields fell 4.4 bps to 3.812 percent.
On the shorter end of the curve, the two-year yield, which typically reflects interest rate expectations, slid 3.2 bps to 4.691 percent.
A widely tracked part of the US Treasury yield curve measuring the gap between yields on two- and 10-year notes modestly extended its inversion to -97 bps on Tuesday. Last Friday, the curve, which has predicted eight of the last nine US recessions, had its deepest inversion in three months at -98.30 bps.
Powell’s congressional testimony on the economy on Wednesday and Thursday will be the highlight this week. He will first appear before the House Financial Services Committee on Wednesday.
“We doubt he (Powell) will provide any more insight than what we heard last Wednesday (the press briefing after the rate decision),” wrote Action Economics in its daily blog.
“Look for him to reiterate the gist of the press conference, that with 500 bps in tightening … and still unknown effects from credit stresses, it made sense to pause and assess.”
