Bond Report: Treasurys sell off, lifting yields, as Fed dashes expectations for full percentage point hike

by | Jul 18, 2022 | Stock Market

Bond yields rose on Monday after Federal Reserve officials talked down the chances of a 100 basis point hike next week and the return of broader market risk appetite reduced demand for the perceived safety of government debt.What’s happening
The yield on the 2-year Treasury
rose 2.5 basis points to trade at 3.16% at 3 p.m. Eastern. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
rose 3 basis points to 2.959$ .

The yield on the 30-year Treasury
was up 4.1 basis points at 3.134%.

What’s driving markets The prospect of a less aggressive-than-feared Federal Reserve, confirmed by an article in The Wall Street Journal, accompanied a more upbeat tone across markets on Monday — reducing the attraction of government paper.

Markets are now pricing in a 69% probability that the policy-setting Federal Open Market Committee will raise interest rates by another 75 basis points to a range of 2.25% to 2.50% at its meeting on July 26-27. The probability of a jumbo-size 100 basis point hike has dropped to 31% from more than 80% last week, which came in the wake of a report showing U.S inflation running at 9.1% as of June.The retreat is a reflection of the effort over the past few days by Federal Reserve officials to talk down the prospect of a full percentage point hike.

Data released on Monday showed U.S. home builder confidence plunged in July, according to the National Association of Home Builders’ monthly confidence index. As a somewhat calmer tone returns to markets, traders are reducing bets on future choppiness. The ICE BofA MOVE Index, a gauge of expected treasury volatility, is currently hovering at 129.9, down from around 156 touched earlier in the month.What strategists are saying “Treasuries were under modest pressure during the overnight …

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