Benchmark Treasury yields are rebounding after a recent slide, driven by the ADP private sector jobs report. The yield on the 2-year Treasury decreased, while the 10-year and 30-year yields rose. The market expects the Fed to maintain interest rates,...
Troy D. Hanson
August 30, 2023
Benchmark Treasury yields showed signs of recovery on Wednesday as traders kept a close eye on the ADP private sector jobs report.
The yield on the 2-year Treasury (BX:TMUBMUSD02Y) decreased by 1.7 basis points to 4.909%. It's worth noting that yields move in the opposite direction to prices.
Conversely, the yield on the 10-year Treasury (BX:TMUBMUSD10Y) rose by 2.4 basis points to 4.149%.
Additionally, the yield on the 30-year Treasury (BX:TMUBMUSD30Y) saw an increase of 2.4 basis points to reach 4.256%.
Following a significant decline over the past week, benchmark Treasury yields are gradually climbing back up. Since reaching a 16-year high of 4.37% on August 22, the 10-year yield dropped to 4.11% on Tuesday due to data revealing a weakened U.S. job market and declining consumer confidence.
"Signs of America's cooling economy have raised hopes that the pause button will be pushed on punishing interest rate hikes," stated Susannah Streeter, head of money and markets at Hargreaves Lansdown.
This narrative will face further examination in the coming days with the release of additional data. On Wednesday, the ADP private sector jobs report for August is scheduled for publication at 8:15 a.m. Eastern time, followed by the PCE inflation reading on Thursday, and culminating with Friday's nonfarm payrolls report.
The Fed's Decision and Economic Updates
Market Expectations for the Fed's Decision
Markets are currently reflecting an 87% probability that the Federal Reserve will maintain interest rates unchanged within a range of 5.25% to 5.50% after its upcoming meeting on September 20, according to the CME FedWatch tool.
However, there is a 44% chance that the central bank will opt for a 25 basis point rate hike in November, pushing the range to 5.50% to 5.75%.
Implications for the Fed Funds Rate
Based on 30-day Fed Funds futures, experts anticipate that the Fed will not decrease its target for the Fed funds rate to approximately 5% until July of 2024.
Additional Economic Updates
Alongside the Fed's decision, Wednesday's economic agenda includes several crucial updates:
Revision of second-quarter GDP
Advanced reading of trade balance in goods, retail, and wholesale inventories for July
Publication of pending home sales data for July at 10 a.m.
Analysis and Insights
Analysts have weighed in on the current state of affairs: