Bond yields remained relatively stable on Tuesday as investors awaited a series of upcoming U.S. jobs data.
- The yield on the 2-year Treasury rose 1.3 basis points to 4.870%.
- The yield on the 10-year Treasury remained unchanged at 3.959%.
- The yield on the 30-year Treasury increased by less than 1 basis point to 4.013%.
Investors are closely monitoring labor-related data as the Federal Reserve continues its tightening cycle which began in March 2022. A tight jobs market has been identified as a contributing factor to inflationary pressures.
The following labor-related reports will be released in the next few days:
- JOLTS job openings report for July on Tuesday at 10 a.m. Eastern
- ADP private sector jobs reports on Wednesday
- Weekly initial unemployment claims report on Thursday
- Nonfarm payrolls report on Friday
Based on current market pricing, there is an 82% probability that the Fed will keep interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20, according to the CME FedWatch tool.
The likelihood of a 25 basis point rate hike to a range of 5.50% to 5.75% at the subsequent meeting in November is priced at 29%.
The Future of the Fed Funds Rate
According to 30-day Fed Funds futures, it is not expected that the central bank will lower its Fed funds rate target back down to around 5% until May 2024.
U.S. Economic Updates
On Tuesday, several U.S. economic updates are set to be released. This includes the S&P manufacturing PMI for July, scheduled for 9:45 a.m., as well as the ISM manufacturing report for July and June construction spending, both at 10 a.m.
Jim Reid, a strategist at Deutsche Bank, analyzed some recent statements made by Chicago Fed President Austan Goolsbee.
Goolsbee, a known dove, expressed that the latest inflation figures were “fabulous news” and believed that the U.S. was now on what he referred to as the “golden path”. However, he cautioned that the Fed still needed to assess the situation and did not commit to a specific view on the September meeting. He suggested that any potential rate cuts would only occur if inflation recedes.
Reid stated in a morning note on Tuesday, “Goolsbee’s interview had minimal impact on market expectations… Overall, the market predicts just over a third of another rate hike in this Fed hiking cycle, and a total of 115bps of rate cuts by December 2024.”