Treasury yields finished broadly higher on Monday as the government announced a lower-than-expected $776 billion in borrowing needs for the fourth quarter.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 2.7 basis points to 5.037% from 5.01% on Friday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
advanced 2.9 basis points to 4.875% from 4.846% on Friday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was up 1.1 basis points at 5.034% from 5.023% on Friday. - Monday’s announcement by Treasury coincided with the release of 3 p.m. Eastern time figures from Dow Jones Market Data.
What drove markets
Yields climbed on Monday as the Treasury released a fourth-quarter financing estimate of $776 billion that was $76 billion less than had been expected in July. Another round of documents from Treasury, including an auction schedule, is set to arrive on Wednesday.
Read: Why Treasury’s borrowing needs could overshadow the Federal Reserve decision this week
The refunding process had created some angst in the bond market because of nervousness around the U.S. government’s growing deficit. During the third quarter, Treasury borrowed an eye-popping $1.01 trillion.
Tuesday brings the latest monetary policy decision from the Bank of Japan, which has the potential to affect the fixed-income market if the central bank makes adjustments to its yield-curve control policy.
Then on Wednesday, the same day as the Federal Reserve’s policy announcement, the U.S. Treasury will provide more details from its quarterly refunding process.
Markets are pricing in a 98.2% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on Wednesday, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by December is seen at 24.5%, though that may change depending on what Fed Chair Jerome Powell says during his post-meeting press conference.
The Bank of England is also expected to leave rates unchanged on Thursday. Friday brings October’s U.S. nonfarm payrolls report.
What analysts are saying
“We continue to see a recession coming, and I think the Fed does too,” said Jeff Klingelhofer, co-head of investments at Thornburg Investment Management in Santa Fe, N.M. “So, at some point, they’re happy to pause for a very prolonged period of time.”
Fed officials “don’t have to get back directly to 2%, which is their long-term objective, but even at today’s levels of close to 4%, I think it’s still too high for the Fed and continue to expect at least one more hike from them,” Klingelhofer said in an email.
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