2 hrs ago
U.S. Treasury Yields Fall as Waller Dents Rate Hike Bets
U.S. government borrowing costs fell after a Federal Reserve official said interest rates might stay where they are.
Christopher Waller said this could happen if new data shows that inflation is cooling.
Because of his comments, investors became less confident that the Fed would raise rates in September.
The market-implied chance of a hike fell from 63.2% to 50.4%.
A government report showed that weekly jobless claims increased slightly to 206,000.
This suggested that the job market was slowing a little but remained fairly stable.
Another report showed that the services sector grew faster than expected.
Investors are waiting for inflation and jobs reports to better understand what the Fed will do next.
U.S. Treasury yields declined after Federal Reserve Governor Christopher Waller said he favored holding rates steady if inflation continues cooling.
Markets lowered the implied chance of a September Fed rate hike to 50.4% from 63.2%, according to CME FedWatch.
The benchmark 10-year Treasury yield fell 3.8 basis points to 4.756%, while the 30-year yield dropped to 5.239%.
Weekly initial jobless claims rose by 2,000 to 206,000, slightly above economists’ 205,000 estimate.
Stronger-than-expected services data limited the yield declines, with the ISM nonmanufacturing index rising to 55.4.
- Who
- Federal Reserve Governor Christopher Waller, investors, and U.S. Treasury markets.
- What
- U.S. Treasury yields fell as Waller’s comments reduced expectations for a September interest-rate increase.
- Where
- U.S. financial markets, with Waller speaking at a Reuters NEXT Newsmaker event in Washington.
- When
- Thursday, September 3; additional inflation data was due the following week and the monthly payrolls report was due Friday.
- Why
- Waller said he favored patience and potentially keeping rates steady if upcoming data confirmed cooling inflation.
Steady-Rate View
Rate-Hike View
What monetary policy should do next
Steady-Rate View
Waller said he was inclined to keep rates steady and remain patient if data confirmed that inflation pressures were easing.
Rate-Hike View
Some Federal Reserve officials had supported a rate increase, and markets continued to price in a substantial chance of a September hike.
How to interpret the economic data
Steady-Rate View
Recent labor-market data pointed to a slow but stable jobs market, while one market strategist said the data supported a rate cut.
Rate-Hike View
Headline inflation was described as serious, and rising oil prices and supply-disruption concerns had fueled broader inflation fears.
Key facts
- September hike probability
- 50.4%, down from 63.2% in the previous session, according to CME FedWatch.
- 10-year Treasury yield
- Fell 3.8 basis points to 4.756%.
- 30-year Treasury yield
- Fell 2.8 basis points to 5.239%.
- Two-year Treasury yield
- Fell 5.6 basis points to 4.33%.
- Initial jobless claims
- Rose 2,000 to a seasonally adjusted 206,000, versus a 205,000 estimate.
- ISM nonmanufacturing index
- Rose to 55.4 from 54.1, exceeding the 54.2 estimate.
- Expected inflation
- The 10-year Treasury inflation breakeven rate indicated expectations of approximately 2.4% annual inflation over the next decade.
Quotes
Jay Hatfield
Chief executive and chief investment officer at Infrastructure Capital Advisors
“The data would support a cut, but of course, headline inflation is awful. And now the December contract is more relevant, and there are still expectations of rate increases, but the data doesn't support it, so CPI is going to be critical.”
livemint.com
“We think the market did get overbaked.”
livemint.com
Sources
Related news
Treasury yields fall as jobs report dashes Fed hike bets
Waller Signals Fed Patience, Keeps Rate Hike Option Open
Waller Keeps September Fed Hold Alive as CPI Looms
U.S. Treasury Yields Ease as Jobs Data Misses Expectations
Weak July Jobs Report Fuels Biggest Treasury Rally Since May
Wall Street Rallies as Waller Eases Rate Hike Fears
Markets Expect Fed Rate Hike Despite Trump’s Lower-Rate Push
Nvidia and Warsh Give Stocks What They Need
Warsh Jackson Hole Speech Raises Rate-Hike Bets, Pressuring Indian Assets