Two- through 30-year Treasury yields finished lower on Tuesday as the market looked to settle following a period of volatility.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
fell 2.4 basis points to 4.915% from 4.939% on Monday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated 9.2 basis points to 4.570% from 4.662% Monday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
dropped 9.7 basis points to 4.734% from 4.831% late Monday. - 10- and 30-year rates have each fallen five of the past six trading sessions, according to 3 p.m. Eastern time figures from Dow Jones Market Data.
What drove markets
The Treasury market strove for stability on Tuesday after volatility in recent sessions. Hopes that the Federal Reserve may be done with increasing interest rates has caused the benchmark 10-year yield to drop from a cycle high of around 5% to its current level near 4.6% in just a few weeks.
Read: The Fed wanted the bond market’s help in fighting inflation. Is it backfiring?
A reminder for investors that central banks could readily revive rate hikes if inflation proves sticky came from overseas on Tuesday, when the Reserve Bank of Australia lifted interest rates by 25 basis points to 4.35%, its first increase in months.
Back in the U.S., markets priced in a 90.2% probability that the Fed will leave interest rates unchanged at 5.25%-5.50% on Dec. 13, according to the CME FedWatch tool. The chance of a 25-basis-point rate hike to a range of 5.50%-5.75% by the end of January was seen at 14.8%.
In U.S. economic data released on Tuesday, the trade deficit climbed almost 5% in September to $61.5 billion, but remained near a three-year low. Meanwhile, the latest report on household debt from the New York Fed showed that credit-card debt hit a record high in the third quarter.
Also on Tuesday, Minneapolis Fed President Neel Kashkari, in an interview on Bloomberg, said that officials have not discussed what it would take to cut interest rates. His colleague, Chicago Fed President Austan Goolsbee, said October’s slowdown in job creation was welcome news because it brought the labor market into “a more balanced” and sustainable growth.
The Treasury’s $48 billion auction of 3-year notes came in as-expected on Tuesday.
What analysts are saying
The first half of next year is “when the divergence between ‘good’ U.S. data and ‘bad’ rest-of-the-world data reverses upon a U.S. consumer-led slump,” according to Thierry Wizman, Macquarie’s global FX and interest rates strategist, and others at the firm.
“But the real ‘juice’ is in UST bonds. They should be bought, as 10-year yields may decline toward 4% as the slump becomes more evident,” the Macquarie team wrote in a note on Tuesday.
