Treasury Yields Slightly Down

The yield on the US 10-year Treasury note pared earlier losses to trade slightly lower at around 4.48% on Monday as investors returned from the long holiday weekend and digested the latest economic data. The ISM Services PMI pointed to a modest slowdown in services sector growth, broadly in line with expectations, while price pressures eased to their lowest level since February and employment rose by the most since late 2021. The report followed last week's softer-than-expected jobs data, which prompted investors to lower bets on Fed rate hikes this year. Meanwhile, oil prices have retreated to pre-conflict levels, helping to ease concerns over renewed inflationary pressures. Markets are now pricing in a 56% probability of a Fed rate cut as early as September, down from around 64% before the jobs report was released. Investors will turn their attention to the release of the FOMC minutes later this week for further clues on the Fed's policy outlook.

The yield on the US 10-year Treasury note eased to around 4.47% on Monday, giving back some of last week’s gains as investors cautiously awaited the minutes of the Federal Reserve’s June policy meeting for further clues on the interest rate outlook. Data released last week showed US nonfarm payrolls increased by just 57,000 in June, the smallest gain in four months and well below forecasts of 110,000, prompting traders to reduce bets on a September rate hike. Meanwhile, the unemployment rate unexpectedly edged down to 4.2%, largely due to a drop in the labor force participation rate to its lowest level since 2021. Oil prices also moved lower as recovering energy flows through the Strait of Hormuz and the prospect of higher OPEC+ output fueled concerns about a potential supply glut. That has helped ease inflationary pressures that had previously reinforced expectations of further rate hikes.

The yield on the US 10-year Treasury note fell about 2 basis points to 4.46% on Thursday after a weaker-than-expected jobs report prompted investors to reduce bets on Federal Reserve rate hikes this year. The US economy added just 57K jobs in June, while payroll figures for April and May were revised lower. Meanwhile, the unemployment rate unexpectedly edged down to 4.2%, largely reflecting a decline in the labour force participation rate to 2021-lows. Overall, the report pointed to a softening labour market in June. The probability of a Fed rate hike in September currently stands at nearly 50%, down from around 64% a day earlier. In addition, Fed Chair Kevin Warsh said at the ECB Forum this week that inflation expectations had eased over the past month, suggesting there was no urgency to raise interest rates. However, he reiterated the central bank's commitment to restoring price stability. The US bond market will be closed on Friday for the Independence Day holiday.