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Yields on the 10- and 30-year Treasurys fell again Wednesday morning amid continued expectations the Federal Reserve is done raising interest rates and concerns about war in the Middle East.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
was 4.991%, up less than 1 basis point from 4.982% on Tuesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated 6.2 basis points to 4.592% from 4.654% Tuesday afternoon. Tuesday’s level was the lowest 3 p.m. Eastern time level for the 10-year rate since Sept. 29. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell 8.1 basis points to 4.747% from 4.828% late Tuesday. Tuesday’s level was the lowest closing level since Oct. 2.
What’s driving markets
News that missiles had been fired from Lebanon at Israeli positions caused a dip in yields during European trading Wednesday, signaling that haven flows are partly behind the recent demand for Treasurys.
However, analysts said the primary driver that’s pushing yields lower for now is a perceived shift in thinking among market participants that suggests the central bank may not need to raise interest rates again in this cycle.
This remained the case on Wednesday, despite data showing U.S. producer prices came in a little hotter for September. The U.S. producer price index rose 0.5% in September, down slightly from an 0.7% increase in August, but above the 0.3% advance expected by economists polled by The Wall Street Journal.
Ahead of Thursday’s consumer price index report for September, fed funds futures traders priced in an 86.8% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool. The chance of no action by December was seen at 70.8%.
Treasury will auction $35 billion of 10-year notes at 1 p.m. Eastern time.
What are analysts saying
U.S. government debt continues “to benefit from a flight-to-quality bid and there wasn’t anything within the PPI release that will offset that,” said BMO Capital Markets rates strategist Ian Lyngen.
“Geopolitical uncertainty remains the primary theme of the session and we’re unwilling to fade that ahead of this afternoon’s 10-year auction and the FOMC meeting minutes,” Lyngen wrote in a note. Investors “remain attuned to any further headlines and developments from the Middle East.”
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