Bond yields rose on Tuesday after positive comments on China’s economic prospects damped demand for Treasuries.
What’s happening
- The yield on the 2-year Treasury TMUBMUSD02Y, 4.695% rose 3.6 basis points to 4.704%. Yields move in the opposite direction to prices.
- The yield on the 10-year Treasury TMUBMUSD10Y, 3.739% added 2.1 basis points to 3.746%.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.832% gained 1.7 basis points to 3.834%.
What’s driving markets
A slightly more risk-positive tone across global markets — alongside optimistic comments on the Chinese economy from the country’s premier — were reducing demand for sovereign bonds and nudging Treasury yields higher.
U.S. economic updates set for release on Tuesday include durable goods orders for May, due at 8:30 a.m. Eastern, the S&P Case-Shiller home price index for April at 9 a.m., and May new home sales at 10 a.m., alongside the June consumer confidence reading.
However, probably the most important datapoint this week will be Friday’s PCE inflation indicator, a gauge of price momentum keenly watched by the Federal Reserve
Markets are pricing in a 77% probability that the Fed will raise interest rates by 25 basis points to a range of 5.25% to 5.50% after its meeting on July 26, according to the CME FedWatch tool.
The central bank is not expected to take its Fed funds rate target back down to around 5% until April 2024, according to 30-day Fed Funds futures.
What are analysts saying
Saxo Bank noted that sovereign bond prices had risen in the U.S. and Germany on Monday after a survey of German business confidence suggested increasing weakness in Europe’s biggest economy.
“Despite the rally, the US Treasury sold 2-year notes at the highest yield since February, the second highest since 2007. We expect sovereign yields in the U.S. and Germany to rise this week amid the Sintra forum, where central bankers will likely reinforce their resolution to fight inflation,” said Saxo strategists in a morning note.
“Our expectation is for the front part of the yield curves to resume its rise towards 5% in the U.S. and 4% in Germany while long-term yields remain underpinned by weak growth data.”