US Treasury yields fall after FOMC minutes, weak data

Weak US economic statistics is the reason behind an eight basis point decline in the US 10-year Treasury yield. FOMC minutes mention the downturn in the economy and leave room for rate decreases should inflation get close to the 2% target. A decline in ADP Employment Change and a notable drop in the ISM Services PMI to 48.8 caused yields to fall. The number of initial jobless claims increased to 238K, above both previous and expected figures.

According to the CME FedWatch Tool, US Treasury bond rates fell on Wednesday as US data raised the likelihood that the Federal Reserve would loosen policy as early as September. Labour market information and feeble Services PMI weighed on yields and propelled the surge in US bonds. On Wednesday, the US 10-year benchmark note rate fell by about eight basis points to 4.355%. Rates on the US 10-year benchmark note plummet as anticipations of a September rate decrease rise in response to poor data.

Officials admitted that the economy appears to be slowing down, according to the most recent FOMC minutes, but they also said they would not hesitate to hike the fed funds rate if the disinflation process stalled. The current policy, according to policymakers, is restrictive, and they may decide to loosen it once they are certain that inflation will eventually reach their target of 2%.

According to data from the Institute for Supply Management (ISM), US business activity in the services sector shrank after hitting its highest point since August 2023. Recessionary conditions were indicated by the June ISM Services PMI, which fell precipitously to 48.8, the lowest level since May 2020 and the sharpest dip in four years.

This could be a lead-up to Friday’s Nonfarm Payroll figures, along with a worse ADP Employment Change report for June that came in at 150K and missing projections and the prior month’s statistics. Initial Jobless Claims for the week ending June 29 increased to 238K, above the prior reading of 234K and predictions of 235K.

The likelihood of a 25 basis point Fed rate drop in September is now 66%, up from 63% on Tuesday, according to the CME FedWatch Tool. Based on the December 2024 fed funds rate futures contract, traders are anticipating 38 basis points (bps) of easing, according to data from the Chicago Board of Trade (CBOT).