Yield increases normal after rate cut, may last short-term
U.S. indexes up marginally: Nasdaq up ~0.25%
Materials lead S&P 500 sector gainers; Financials weakest group
Euro STOXX 600 index up ~0.6%
Dollar down; Bitcoin slips; gold up, crude rises >1%
U.S. 10-Year Treasury yield edges up to ~3.75%
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
YIELD INCREASES NORMAL AFTER RATE CUT, MAY LAST SHORT-TERM
Longer-dated U.S. Treasury yields have increased since the Federal Reserve launched its rate cutting cycle with a bigger than some expected 50 basis points reduction. That is not unusual after a first Fed cut, and there are reasons yields could continue to rise short-term, according to ING.
This move “likely persists for a bit. But history also shows that the 10yr yield ultimately hits a level lower than seen at the first cut,” Padhraic Garvey, regional head of research, Americas at ING said in a note.
Garvey notes that 10-year yields rose by 20 to 50 basis points after the first cut in the four rate-cutting cycles during the 1990’s and 2000s, typically over the following month or so.
That contrasts with the three rate cutting cycles in the 1980s, when yields fell materially following the first cut. Garvey notes this may have been because they began with high rates. In 2019, meanwhile, rates fell after the first cut from lower levels.
For now, yields may still rise further, ING says.
“Despite the chunky 50bp cut, the Federal Reserve seems convincingly upbeat on the economy. That suggests the cut is an offensive one; a means to averting a material slowdown. If true, it suggests that recession risk is reduced (not panic increased),” Garvey noted.
In this scenario there is no need for the Fed to cut rates below 3%, which should then act as a "red line floor" for rates across the curve. Ten-year yields may have a floor of around 3.5%, based on where the yields are relative to the SOFR curve.
Thus, a move to 3.9% on 10-year yields is viable, based on previous periods, with the question then “whether there is an appetite to break above 4%,” Garvey said.
Ultimately, however, yields are likely to drop with soft jobs data being the most likely catalyst. Garvey sees 10-year yields heading back toward 3.5%, breaking below the 3.599% level reached on Sept. 17. That was the day before the rate cut and the lowest level since June 2023. They were last at 3.745%. US10YT=RR
(Karen Brettell)
*****
FOR TUESDAY'S EARLIER LIVE MARKETS POSTS:
TUESDAY'S DATA: CONSUMER FUNK GIVES FED CUT SOME CRED - CLICK HERE
U.S. INDEXES OPEN SLIGHTLY HIGHER, LOSE SOME GROUND AFTER DATA - CLICK HERE
BENCHMARK TREASURY YIELD PERKS UP, AWAITS PCE - CLICK HERE
ANOTHER CUT TO LUXURY EARNING - CLICK HERE
MORE LOVE FOR US SMALL CAPS - CLICK HERE
CHINA POP FOR MINERS, LUXURY AND AUTOS - CLICK HERE
DAX FUTURES HIT RECORD HIGH - CLICK HERE
NO BAZOOKA, BUT CHINA'S LATEST STIMULUS IS A RELIEF - CLICK HERE
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
