Bond yields rose on Monday, as broader market risk appetite reduced demand for the perceived safety of sovereign debt.
The yield on the 2-year Treasury
slipped by less than 1 basis point to 3.012%. Yields move in the opposite direction to prices.
The yield on the 10-year Treasury
retreated 1.8 basis points to 2.984%.
The yield on the 30-year Treasury
fell 1.7 basis points to 3.172%.
The 10-year to 2-year spread of minus 19.5 basis points means the yield remains at its most inverted in 20 years, signaling a looming economic downturn.
What’s driving markets
The prospect of a less aggressive-than-feared Federal Reserve was not enough to entice buyers into treasuries as a more upbeat tone across markets reduced the attraction of government paper.
Markets are pricing in a 33% probability that the Fed will raise interest rates by another 100 basis points to a range of 2.50% to 2.75% after its meeting on 27th July.
But that is down sharply from the more than 90% probability registered last week, which came in the wake of a report showing U.S inflation running at 9.1% in June, a 41 year high.
The retreat reflects an effort over the past few days by Federal Reserve officials to talk down the prospect of a full percentage point hike.
The central bank is expected to take its borrowing costs to 3.4% by February 2023, according to Fed Funds futures.
The NAHB Housing Market Index is the only notable U.S. economic data release on Monday.
As a somewhat calmer tone returns to markets, traders are reducing bets on future choppiness. The ICE BoAML MOVE Index, a gauge of expected treasury volatility, is currently hovering at 129.9, down from the record high of near 160 touched earlier in the month.
This takes the closely-watched German-Italian spread to 216 basis points ahead of the European Central Bank’s monetary policy decision on Thursday, and amid political turmoil in Rome.