Treasury Yields Hold Steady Ahead of Fed Minutes

Treasury yields exhibited a mixed performance on Wednesday morning, influenced by weaker-than-expected data from China that raised concerns about global economic growth.

‍

The yield on the 2-year Treasury declined by 4.2 basis points to 4.896% from the previous level of 4.938% on Monday. Meanwhile, the yield on the 10-year Treasury increased by 1.2 basis points to 3.868% compared to 3.856% on Monday afternoon. The 30-year Treasury yield also rose by 1.2 basis points to 3.888% from 3.876% late Monday.

‍

The disappointing survey results of China's services sector renewed worries about the pace of global economic growth. This led buyers to seek fixed-income assets, resulting in lower Treasury yields earlier on Wednesday.

‍

Traders eagerly awaited the release of the minutes from the Federal Reserve's policy meeting held on June 13-14, scheduled for publication at 2 p.m. Eastern time. The upcoming U.S. nonfarm payrolls report for June, set to be released on Friday, is also anticipated to influence the Fed's decisions regarding monetary tightening.

‍

Market expectations suggest an 88.7% probability of the Fed raising interest rates by 25 basis points to a range of 5.25%-5.5% on July 26, according to the CME FedWatch Tool. However, the central bank is not expected to lower its fed funds rate target to approximately 5% until next year.

‍

Analysts foresee a continuation of the U.S. yield curve flattening throughout the summer, with long-term yields rising at a slower pace while short-term yields experience faster growth. Weaker growth data could accelerate this flattening process, particularly affecting the longer end of the yield curve. The focus is currently on the release of the FOMC minutes, while tomorrow's attention will shift to the JOLTS numbers and the non-farm payrolls report on Friday. The upward trend of 10-year Treasury yields towards 4% and the rise of two-year yields towards 5% reflect market expectations of future rate cuts.

‍