U.S. Treasury yields pulled back on Tuesday after the 10-year and 30-year notes hit 24-year highs a day earlier. Traders now price a roughly 80% chance the Fed holds rates steady at its next meeting, with September's FOMC minutes due Wednesday.
U.S. Treasury yields eased on Tuesday as a rally that pushed them to multi-decade highs took a pause. The benchmark 10-year yield was last down more than 2 basis points at 5.286%, a day after touching its highest level since April 2002.
The 30-year yield slipped less than 1 basis point to 5.659%, having risen Monday to levels not seen since May 2002. The 2-year note yield fell more than 3 basis points to 4.80%. One basis point equals 0.01%, and yields move opposite to prices.
Monday's surge followed cooling services data
Treasury yields had soared on Monday, with the 10-year and 30-year notes recording 24-year highs after fresh data from the Institute for Supply Management pointed to cooling services growth. The ISM services PMI reading rose to 54.9 in September, roughly in line with expectations but below August's pace, while the prices index climbed 1.4 points to 74.
Markets lean toward a Fed pause
As a result, traders are now pricing a roughly 80% chance the Federal Reserve holds rates steady at its next meeting, according to the CME Group's FedWatch tool. Investors will get a closer look at the central bank's thinking when the Fed releases the minutes from its September meeting on Wednesday, the week's key event for rate expectations.
According to CNBC: David Miller, CIO at Catalyst Funds, said "The bond market is sending a more important signal right now than the stock market", noting the Fed has far less control over long-term yields than short-term ones.
Morgan Stanley Wealth Management investment chief Lisa Shalett described bonds as volatile over the past six weeks, pointing to a potentially new Fed policy framework, economic growth and high oil prices amid the ongoing Middle East conflict. Still, she wrote that implied volatility has not reached the extremes that preceded the 2022 equity bear market.
Source: US Top News and Analysis
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