WASHINGTON: Treasuries stalled after two-year yields approached their lowest level this year amid bets the Federal Reserve (Fed) will cut interest rates again this month.
Two-year yields were near 3.50% after midday in New York after approaching 3.46% overnight, within about three basis points of the low reached during April’s tariff-fuelled market chaos.
Amid a drought of economic data caused by the US government shutdown that began Oct 1, Wednesday’s move lacked a clear catalyst, suggesting that investors are apt to take profits in the absence of new information.
Treasuries have rallied since the latest flare-up in trade tension between the United States and China prompted renewed demand for US government debt as a haven. The market also has drawn support from the Fed cutting interest rates in September for the first time this year in response to signs of labour-market weakness.
Fed chair Jerome Powell on Tuesday suggested the central bank is on track to cut again when officials meet Oct 28-29. Sticky inflation, however, is muddying the outlook further out.
“Powell’s comments on Tuesday have cemented expectations for another 25 basis point-rate cut later this month – which remains effectively fully priced in, as does a comparable move in December,” BMO Capital Markets strategists wrote in a note.
“The prospects for cuts in January and March are currently far less certain.”
Bond markets were broadly stronger worldwide.
Longer-term Japanese debt climbed after firm demand at a 20-year government-bond auction, while French notes rose on optimism that the French government will survive the country’s latest political turmoil. — Bloomberg
