US 10Y Yield Steadies Ahead of FOMC Minutes

The yield on the US 10-year Treasury note held around 4.48% on Tuesday as investors awaited the minutes of the Federal Reserve’s June meeting for fresh clues on the outlook for interest rates. Data released last week showed a sharp slowdown in US job growth in June, alongside downward revisions to payroll figures for the previous two months, leading markets to scale back expectations for near-term rate hikes. Meanwhile, the latest ISM Services PMI indicated a modest slowdown in services sector activity that largely matched forecasts, while price pressures eased to their lowest level since February and employment posted its strongest gain since late 2021. Markets are now pricing in roughly a 50% chance of a Fed rate increase in September, down from about two-thirds before the latest employment report. Investors will also monitor US trade deficit data due later in the day.

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.