U.S. Treasury yields moved lower Tuesday after the 10-year and 30-year rates climbed to their highest levels in more than two decades during the previous session, giving bond markets a brief pause after several weeks of volatility.
The benchmark 10-year Treasury yield fell more than 2 basis points to 5.286%, after reaching its highest level since April 2002 on Monday. The 30-year yield slipped less than 1 basis point to 5.659%, following a move to levels not seen since May 2002. The 2-year Treasury yield also declined, falling more than 3 basis points to 4.80%.
Yields had surged Monday following fresh economic data showing that U.S. services-sector growth continued to expand, although at a slightly slower pace. The Institute for Supply Management’s September purchasing managers’ index rose to 54.9, broadly matching expectations but below August’s reading.
At the same time, the prices index increased 1.4 points to 74, adding another factor for investors to consider as they assess the outlook for inflation and interest rates.
Markets Await Fresh Signals From the Federal Reserve
Investors are now placing about an 80% probability on the Federal Reserve leaving interest rates unchanged at its next meeting, according to the CME Group’s FedWatch tool. Attention is turning to the minutes from the Fed’s September meeting, due Wednesday, as traders look for indications about the central bank’s future policy direction.
David Miller, chief investment officer at Catalyst Funds, said the bond market is currently providing a more important signal than equities, noting that the Federal Reserve has greater influence over shorter-term rates than longer-term yields.
Bond markets have remained unsettled over the past six weeks. Morgan Stanley Wealth Management investment chief Lisa Shalett pointed to several factors behind the volatility, including a potentially changing Fed policy framework, economic growth and elevated oil prices as the conflict in the Middle East continues.
She noted that while intraday implied volatility has increased, the recent six-week period has not reached the extreme levels associated with the 2022 equity bear market.
Why It Matters: The movement in longer-term Treasury yields can influence borrowing costs across the economy and remains closely watched by investors. With yields near multiyear highs and the Federal Reserve minutes approaching, markets are looking for clearer signals on where interest rates and inflation may be headed.
