of 10 year treasury Yields hovered around the 4% level on Tuesday as investors eyed the Federal Reserve’s interest rate decisions.
The yield on the benchmark 10-year Treasury note fell more than a basis point to 3.983%, while the yield on the two-year Treasury note rose less than a basis point to 3.498%. The yield on 30-year bonds also fell by 2 basis points to 4.549%.
One basis point equals 0.01% (1/100 of 1%), and yield and price are inversely proportional to each other.
Policymakers are widely expected to cut interest rates, with investors looking ahead to the start of a two-day Fed meeting on Tuesday.
Traders are pricing in a nearly 98% probability that the overnight federal funds rate will fall to a range of 3.75% to 4.00% from its current range of 4.00% to 4.25%, according to the CME FedWatch tool.
“While economic data is limited due to the government shutdown, last Friday’s CPI was weaker than expected, and the slowdown in employment seen over the past few months has paved the way for the Fed to cut interest rates again,” said Paul Stanley, chief investment officer at Granite Bay Wealth Management.
Fed Chairman Jerome Powell’s speech after the announcement of the interest rate decision will be closely watched as a clue as to whether the Fed will cut rates further at its final meeting in December.
“While a rate cut in October is likely, and the market is also pricing in another rate cut in December, there are still six weeks until the meeting, so I wouldn’t be surprised if the Fed takes a wait-and-see approach until then,” Stanley added. “Wednesday’s rate cut is fully entrenched, but December’s rate cut is not agreed upon and is subject to change.”
Meanwhile, the U.S. government shutdown continues, reaching its 28th day on Tuesday, with investors still grappling with an economic data blackout. Preliminary data released by ADP shed some light on the picture on Tuesday, showing private sector employers added nearly 15,000 jobs a week over the past four weeks, reversing the decline recorded in September. Additionally, the latest consumer confidence index hit its lowest level since April.
“With fewer data points, the market becomes reliant on prior assumptions,” said Willie Walker, chairman and chief executive officer of Walker & Dunlop. “The front end may level out slightly as investors price in policy caution, but the long end is still driven by inflation and growth expectations. Historically, these curve shifts have been temporary unless there is an extended shutdown.”
US President Donald Trump and Chinese President Xi Jinping are also scheduled to meet in South Korea on Thursday. Investors are hopeful that trade tensions will ease now that the two countries have agreed on the framework for a potential trade deal.
