U.S. Treasury yields on Thursday were little changed, a day after the Federal Reserve cut interest rates, with divisions within its rate-setting ranks casting doubt on the Federal Open Market Committee’s appetite for further interest-rate reductions.
However, the perception that Wednesday’s Fed policy decision was hawkish, is expected to lend some support to bond prices, nudging yields lower, market participants said, with investors watching a parade of other central bank decisions and a series of economic updates including a forecast of slower global economic growth from the OECD.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -2.37% was little changed around 1.768%. The 2-year note rate TMUBMUSD02Y, -1.85%, sensitive to shifting expectations for Fed policy, rose 0.1 basis point to 1.742%, while the 30-year bond yield TMUBMUSD30Y, -2.15% edged 1.5 basis points lower to 2.221%.
Yields fall as debt prices rise.
What’s driving Treasurys?
Fed Chairman Jerome Powell signaled less certainty about the rate path than at the central bank’s late-July meeting, saying it “is going meeting by meeting.” That setup has disappointed some investors who had believed that the European Central Bank’s comparatively more aggressive easy-money measures gave the Fed allowance to set a more definitively dovish path for U.S. policy.
However, the Fed boss did leave the door open for more rate cuts if needed while emphasizing that the U.S. economic expansion was healthy, albeit slowing.
The U.S. central bank, as expected, cut its fed-funds rate target by a quarter-percentage point to a range between 1.75% to 2.00%, with three members of the Federal Open Market Committee dissenting from the decision.
Still, some fixed-income traders said they anticipate at least one more rate reduction next month at its Oct. 29-30 gathering. Wall Street sees a 47% chance of a 25 basis-point cut in October, but a majority, about 53%, believe that the FOMC will hold rates steady at the current rate, federal-funds futures show, according to CME Group data on Thursday.
“The hawkish Fed decision seems to be lending support to bonds given the fact the Fed will most likely fall in-line and cut rates again in October,” said Tom di Galoma, managing director at Seaport Global Holdings, in a daily research note.
Meanwhile, in other central bank moves, the Bank of Japan held its interest rates steady, but signaled that it may cut rates at its Oct. 30-31 gathering. “If I am asked if I feel more favorably about additional easing compared with the previous meeting, my answer is yes,” said BOJ Gov. Haruhiko Kuroda at a news conference after the bank’s policy meeting. “There is no sign of recovery in overseas economies.”
Indeed, the Paris-based OECD underscored expectations for anemic economic growth across the world, citing trade clashes as amplifying a global slowdown. “Escalating trade conflicts are taking an increasing toll on confidence and investment, adding to policy uncertainty, aggravating risks in financial markets and endangering already weak growth prospects world-wide,” the OECD forecasts, released Thursday, said.
Elsewhere, the Swiss National Bank also made no changes to its current monetary-policy plans, the Bank of England unanimously voted to hold interest rates at 0.75% and maintain its government purchases at £435 billion.
However, Norway’s central bank raised its interest rates by 25 basis points to 1.50% to the highest level in 5 years, while the Bank of Indonesia cut rates by a quarter-of-a-percentage point, as expected.
Looking ahead, fixed-income investors will be watching for more signs of the health of the U.S. market. At 8:30 a.m. Eastern Time, a weekly report on U.S. jobless claims is due, as well as a survey on business conditions in the Philadelphia region. A reading of the U.S.’s current-account deficit for the second quarter is expected at the same time.
At 10 a.m., a report on U.S. existing home sales will be released as well as a report on leading economic indicators.