Written by Joy Wiltermuth and Jamie Chisholm
Long-term Treasury yields fell sharply on Thursday as investors weighed cooler economic data and comments from Walmart’s chief executive that the company is bracing for an “era of deflation.”
Fed Governor Lisa Cook also said Thursday that a soft landing for the economy remains a possibility, but not a guarantee.
what’s happening
The yield on the two-year government bond BX:TMUBMUSD02Y fell 9 basis points to 4.83%. Yields move in the opposite direction to prices. The yield on the 10-year US Treasury note BX:TMUBMUSD10Y fell 10 basis points to 4.44%. The yield on the 30-year US Treasury note BX:TMUBMUSD30Y fell 7 basis points to 4.62%.
what drives the market
Benchmark U.S. Treasury yields fell sharply on Thursday, with the 10-year Treasury yield down more than 50 basis points from its 16-year peak of 5% in October.
Investors have been buying bonds in recent weeks on hopes that easing inflation and a cooling economy will allow the Federal Reserve to start cutting interest rates by the middle of next year. Bond prices and yields move in opposite directions.
Traders on Thursday said they expected further signs of cooling U.S. economic activity, especially after Chief Executive Doug McMillion said he expected deflation in the coming months during his term at the company. The company seems to be paying close attention to the quarterly results of giant retailers including (WMT). Third-quarter results will be announced early Thursday morning.
“I think there’s a sense that there could be an overstock, but I’m not completely convinced,” Will Compernoll, macro strategist at FHN Financial, said on a call.
Companol also said there are still signs that deteriorating growth sentiment is pushing yields lower further out of the curve in the U.S. Treasury market.
Fed Governor Lisa Cook said Thursday in a speech at San Francisco Regional Bank that she believes a “soft landing” for the economy is possible but not guaranteed.
According to the CME FedWatch tool, the market has priced in a 99.7% probability that the Fed will keep interest rates unchanged between 5.25% and 5.50% after its next meeting on December 13th and its subsequent meeting on January 31st.
See also: Stock and bond investors believe the Fed is done raising interest rates. Why isn’t an agreement reached?
The probability of a 25 basis point rate cut at the May meeting is 35.2%, up from 30% a month ago.
The number of Americans applying for unemployment benefits for the first time last week jumped to 231,000, the highest level in three months, the Labor Department said, suggesting some softening at the end of the strong U.S. labor market. announced that it was doing so.
The Philadelphia Fed said Thursday that its index of regional business activity was -5.9 in November, a slight improvement from the previous month’s -9. A reading below zero indicates a worsening condition. A Wall Street Journal survey of economists had predicted November’s reading would be -7.5.
In other economic indicators, industrial production fell by 0.6% in October, while construction confidence fell for the fourth straight month in November as mortgage interest rates hit 8%.
What are the analysts saying?
”[T]”This is the seventh clear example of markets getting excited about a dovish turn in the past two years, but in the last six times dovish expectations have been completely undone again,” said a German macroeconomic strategist. , Jim Reid warned. Bank.
“It all started with the Omicron variant being seen as the reason the Fed won’t be able to raise money at all in 2022… There will be a dovish pivot at some point, and this one may be closer to that than others. “But be careful, we’ve been to this well seven times in two years,” Reid added.
-Joy Wiltermuth -Jamie Chisholm
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11-16-23 1410ET
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