• The yield on the 2-year Treasury remains steady at 5.008%, while longer-duration yields have slightly retreated.
  • Short-term U.S. bond yields are near 16-year highs, following perceived hawkish remarks from Federal Reserve Chair Jerome Powell.
  • Traders are anticipating a series of economic reports throughout the week, including PCE inflation and the nonfarm payrolls report.

Key Details

  • The 10-year Treasury yield has retreated by 1 basis point to 4.197%.
  • The 30-year Treasury yield has fallen by less than 1 basis point to 4.273%.

Market Factors

Short-term U.S. bond yields are holding strong as investors anticipate the Federal Reserve’s future actions. These yields remained around 5%, while the benchmark 10-year yield eased from its recent cycle highs above 4.3%.

Investors are increasingly certain that the Fed will raise rates again this year and maintain higher borrowing costs for an extended period. This sentiment is driven by comments from Jerome Powell, as well as the upcoming economic reports, which include PCE inflation and the nonfarm payrolls report.

According to the CME FedWatch tool, markets currently reflect a 79% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20th.

Additionally, there is a 50% likelihood of a 25 basis point rate hike to a range of 5.50% to 5.75% at the subsequent meeting in November, up from 30% a month ago.

Fed Funds Rate and Economic Updates

According to 30-day Fed Funds futures, the central bank is not expected to lower its Fed funds rate target to around 5% until August 2024. This is a significant change from the previous expectation that rates would reach that level by May.

Key Economic Updates

Several important economic updates are scheduled to be released on Tuesday. These include:

  1. S&P Case-Shiller home price index for June, due at 9 a.m. Eastern.
  2. Job openings, or JOLTS, survey for July.
  3. August reading on consumer confidence, to be announced at 10 a.m.

Treasury Auction

On Tuesday, the Treasury will hold an auction for $36 billion of 7-year notes.

Analysts’ Insights

He further explained, “In the U.S., the main highlight will be the jobs report on Friday, where our U.S. economists expect nonfarm payrolls to have slowed further to +150k in August. That would be the slowest growth since December 2020, and they see that pushing the unemployment rate up a tenth to 3.6%.”

Allen also noted the decline in temporary help services and its relevance as a leading indicator in previous cycles. He said, “One category we’ve been following closely is temporary help services, because that has traditionally been a strong leading indicator in previous cycles, turning down ahead of the overall number. It’s fallen for 6 months in a row now, so one to keep an eye on.”

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