US Treasury yields declined further Wednesday — with the benchmark 10-year reaching its lowest level since mid-September — after a gauge of service-sector activity became the latest piece of data to suggest the US economy is headed for a downturn.
(Bloomberg) — US Treasury yields declined further Wednesday — with the benchmark 10-year reaching its lowest level since mid-September — after a gauge of service-sector activity became the latest piece of data to suggest the US economy is headed for a downturn.
The 10-year note’s yield declined as much as 8 basis points to 3.26% — and shorter-maturity yields fell even more — in a rally that was sparked by weaker-than-forecast private-sector March job growth and gathered pace after the ISM services index declined more than forecast. Earlier this week, gauges of manufacturing and job openings also fell short of economists’ expectations.
The 10-year Treasury yield has slumped from a peak of 3.54% Monday, reached after an oil-price surge spurred inflationary concerns. It breached the previous year-to-date low reached in March in the wake of the first US bank failures since 2008, and was 1.5 percentage points lower than the three-month Treasury bill yield, the widest margin in decades and historically a reliable recession signal.
Late in New York, the 10-year yield was trading at 3.30% and set for its lowest close since September.
“The narrative has shifted so dramatically from four weeks ago, and clearly the Fed-speak has not been enough so far to arrest the fall in yields,” said Ed Al-Hussainy, a rates strategist at Columbia Threadneedle Investments. Federal Reserve officials including James Bullard, Lisa Cook and Loretta Mester this week have said inflation remains unacceptably high.
The bond market is primed for the Labor Department’s broader assessment of US employment Friday, which may provide a definitive sign of rolling over that could persuade the Fed to forgo another interest-rate hike when officials meet in early May. Swap contracts price in an increase of about 12 basis points, less than half of a standard quarter-point move.
“We are seeing some softness in the labor numbers and weaker data is having more of an impact on the Treasury market,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “We are positioned for tightening financial conditions working their way through the economy.”
The policy sensitive two-year yield remains the fulcrum of extreme volatility, falling as much as 18 basis points to 3.64% after the ADP private-sector employment data and ISM services report, which also showed moderation in hiring. Its year-to-date low is 3.55%, reached last month.
The renewed slide in Treasury yields intensifies the market’s standoff with the Fed, which last month raised the policy rate band by a quarter percentage point to 4.75%-5%. In addition to favoring a pause rather than a quarter-point hike next month, swap contracts linked to Fed meeting dates anticipate the policy rate falling to about 4% in December.
(Adds yield curve development and comment, updates yield levels.)
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