The performance of the Treasury bond American market continues its upward path this Monday, with the 10-year notes, adding three consecutive weeks on the rise. This trend was attributed to expectations that the Federal Reserve will keep interest rates at higher levels for an extended period compared to initial forecasts.
Chicago Fed President Austan Goolsbee said Monday that inflation staying above the central bank’s 2% target remains a bigger risk than the bank’s tight monetary policy. slow down the economy more than necessary.
The yield on the 10-year paper gained 10 basis points, after rising to 4.533%, its highest level since October 2007.
Goldman Sachs last week pushed back its expectations for a Fed rate cut from the second quarter of next year to the fourth quarter of 2024. Meanwhile, expectations for another 25 basis point hike by the Fed in November were lowered to 21.1 %, from 34.1% a week ago, according to CME’s FedWatch tool.
The yield on 30-year debt rose 13 basis points to 4.656%, and the two-year maturity, which typically moves in step with rate expectations, gained 1 basis point to 5.131%.
Economic data was sparse on Monday, but this week investors will be able to see several numbers on the housing market, along with the final reading of second-quarter gross domestic product and personal consumption expenditures.
A closely watched part of the yield curve, which measures the spread between two- and 10-year bond returns, considered an indicator of economic expectations, stood at -59.1 basis points, the steepest level in about 4 months.
“Essentially, the yield curve is going to start pricing in a recession, that’s typically what happens when the yield curve steepens this much,” said Tom di Galoma, co-head of global rates trading at BTIG in New York.
“There’s been a big investment movement, we’ve been invested for a good 15 to 18 months, and now the curve is steepening, and that’s partly because the long term has simply given way to higher rates.”
There will be more supply in the market this week when the Treasury auctions $48 billion in two-year debt on Tuesday, $49 billion in five-year debt on Wednesday and $37 billion in seven-year debt on Thursday.
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