US Treasury Yields Drop As Economic Growth And Labor Markets Cool

What’s going on here?

US Treasury yields slipped early on June 21, 2024, reflecting a cooler economy and labor market, while traders brace for next week’s supply.

What does this mean?

The yield on the benchmark 10-year Treasury note dropped by 2.4 basis points to 4.23%, the 30-year bond yield dipped by 1.7 basis points to 4.376%, and the 2-year note yield edged down by 2.4 basis points to 4.7045%. This trend suggests that recent economic data – including retail sales, housing, and unemployment claims – points to a slowdown, offering a bit of relief for the Federal Reserve as it strives to bring inflation back to its 2% target range. Additionally, traders are closely watching the upcoming manufacturing and services sector surveys for more insights.

Why should I care?

For markets: Economic cooling impacts bond yields.

The dip in US Treasury yields reflects cautious sentiment among investors as they process signs of a slowing economy. Today’s manufacturing and services sector surveys will be critical for further insights. Eurozone bond yields fell as well, driven by softer economic data from France and Germany. This global trend could influence the US bond market and Federal Reserve’s policy decisions in the coming months.

The bigger picture: Global economic pulses influence policy.

Weak economic data from Europe hints at a potential policy shift, with France’s slowing business activity and a sluggish German economy prompting speculation of rate cuts. In the US, Fed funds futures indicate a 64% chance of easing in September, with possibilities for one to two rate cuts of 25 basis points each this year. An upcoming auction will see the US issuing about $183 billion in Treasury notes, which could further shape the yield curve dynamics, currently showing a negative spread between two- and 10-year notes.