U.S. Treasury yields were little changed on Tuesday, with trading notably calmer as investors welcomed the U.K. government’s budget U-turn.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.439%
slipped by less than 1 basis point to 3.012%. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.996%
retreated 1.8 basis points to 2.984%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
4.016%
fell 1.7 basis points to 3.172%.
What’s driving markets
U.K bond yields were nudging higher after the Bank of England disputed reports it would further delay its quantitative tightening program.
The yield on the 30-year U.K. gilt
TMBMKGB-30Y,
an important bond to judge the health of the country’s embattled pension fund system, rose 7 basis points to 4.44%, after the BoE challenged an FT story that it would not sell bonds as planned in order to encourage market stability.
However, moves in Treasuries were relatively meager, with yields slipping, after a budget U-turn by the U.K. government over recent days soothed markets that had been badly rattled by fears of broader stress in the fixed income sector.
“The new sense of calm emanating from the U.K. has helped spread ripples of optimism across global markets…as concerns about contagion from a bond market meltdown abate,” wrote Susannah Streeter,” senior investment and markets analyst at Hargreaves Lansdown.
Jan Nevruzi, strategist at NatWest Markets, said recent moves in bonds of late reflected a more upbeat tone across broader markets.
“Perhaps it was fixed income that needed to ‘re-align’ with the moves in risk assets, since equities held onto their large rally and the USD remained weak against most peers. Even though the traditional risk-on/risk-off relationship between bonds and equities has been weak lately, today’s bear steepening could be interpreted as catching up to equities and FX,” he wrote in a note to clients.
U.S. September industrial production and capacity utilization rate data are due at 9:15 a.m. Eastern time. The NAHB home builders index for October will be published at 10 a.m.
There will be more talk from Federal Reserve officials, too. Atlanta Fed President Raphael Bostic is due to speak at 2 p.m. and Minneapolis Fed President Neel Kashkari will deliver remarks at 5:30 p.m..
Markets are pricing in a 98.5% probability that the Fed will raise interest rates by another 75 basis points to a range of 3.75% to 4.00% after its meeting on November 2nd. The central bank is expected to take its Fed funds rate target to 4.95% by April 2023, according to the CME FedWatch tool.
