US Treasury yields decline as Powell stresses on labour

After the Fed maintained current interest rates, US Treasury yields declined; the 10-year note drops to 4.04%. Fed Chair Jerome Powell highlights the significance of the labour market, noting that the July Nonfarm Payrolls report will be crucial in determining future interest rates.

By year’s end, market players factor in three rate reductions. In response to the Federal Reserve’s anticipated decision to keep interest rates steady, US Treasury yields on both the short and long ends of the curve fell precipitously late on Wednesday. In the wake of Powell’s comments, the coupon on the US 10-year benchmark note fell nine and a half basis points to 4.04%.

The market expects future rate cuts, which causes the US 10-year benchmark note to drop 9.5 basis points to 4.04%. After the monetary policy statement was released, yields increased since it was generally seen as a little bit “hawkish.” However, once Powell entered the stands, everything was different.

Powell observed that the disinflation process had “broadened” and that a robust job market will be necessary in order to lower borrowing rates rather than just inflation.

With these comments in mind, Friday’s July Nonfarm Payrolls report will be a critical component of the picture as the Fed shifts its focus to employment concerns. Powell stated that although officials had discussed cutting rates in July, the majority had decided to maintain the federal fund’s rates (FFR) at their current levels. Powell was questioned about the rate talks that took place in July.

Data-wise, the Automatic Data Processing (ADP) Employment Change report shows that private hiring in the US slowed down in July. In addition, after May’s decline, Building Permits improved. In the meantime, in the second quarter of 2024, the Employment Cost Index (ECI), which the Fed tracks as a gauge of wage inflationary pressures, decreased. Following the Fed’s decision, market participants had priced in three rate cuts toward the end of the year.