US 10Y Yield Holds Gains Ahead of NFP

The yield on the 10-year US Treasury note held around 4.48% on Thursday, maintaining its recent gains as investors cautiously awaited the June jobs report for fresh insights into labor market conditions and greater clarity on the Federal Reserve’s policy outlook. Data released on Wednesday showed private-sector hiring in the US slowed more than expected last month, while the ISM PMI indicated wholesale energy prices had returned to levels seen before the Middle East conflict. Fed Chair Kevin Warsh also said inflation expectations had eased over the past month, signaling there was no urgency to raise interest rates. However, he reiterated the central bank’s commitment to restoring price stability. Markets continue to price in more than a 60% chance of a Fed rate hike in September. Meanwhile, rising oil shipments through the Strait of Hormuz and signs of progress in indirect US-Iran talks pushed oil prices lower and eased inflation concerns.

The yield on the 10-year US Treasury note eased to 4.47% after testing 4.5% earlier in the session after Fed Chairman Warsh said inflation risks in the US were softening. This was aligned with the softer price data from the ISM PMI, as wholesale energy prices returned to levels comparable from before the war in the Middle East. Still, yields held 10bps above the seven-week low from Monday. The ADP Report showed 98,000 private-sector jobs were added to the economy, adding leeway for the Fed to tighten monetary policy to combat high inflation. Although oil prices retreated, refined fuel costs remained sharply higher and backed expectations of a Fed hike this year. Rate traders still showed a loose consensus of one hike by December, but a portion of the market has priced multiple hikes. In the meantime, Warsh reiterated his view that the Fed's balance sheet is too high and hampers the transmission of monetary policy through rate-setting, potentially preluding selling of notes and bonds.

The yield on the 10-year US Treasury note rose toward 4.50% on Wednesday, extending the sharp rebound since dropping to a seven-week low of 4.36% on Monday amid the hawkish outlook for the Federal Reserve. Fresh data from the ADP indicated the US added 98,000 private-sector jobs in June, slightly under estimates but extending the period of low firing in most sectors of the economy. The robust data combined with evidence of elevated core inflation rates following the interruption of global oil supply with the war in the Middle East. Although wholesale oil prices eased to pre-war levels, refined fuel costs remained sharply higher and backed expectations of a Fed hike this year. Rate traders still showed a loose consensus of one hike by December, but a portion of the market has priced multiple hikes. In the meantime, Fed Chairman Kevin Warsh campaign to shrink the Fed's holdings of Treasury notes and bonds also lifted yields.