NEW YORK — U.S. Treasury yields slid from
multi-week peaks on Tuesday after data showed signs of a slowing
economy, with the contraction in U.S. private-sector activity
for a second consecutive month in August and the steep drop in
new home sales for July.
Before the data’s release, U.S. 10-year yields were at
five-week highs, 30-year yields at eight-week peaks, with
five-year yields hitting their highest as well in five weeks.
U.S. economic reports showed that private-sector business
activity shrank to its weakest in 18 months, with particular
softness in the services sector.
The S&P Global flash composite purchasing managers index
(PMI) for August dropped to 45 this month – the lowest since
February 2021 – from a final reading of 47.7 in July.
Sales of new U.S. single-family homes also fell sharply in
July amid persistently high mortgage rates. New home sales
tumbled 12.6% to a seasonally-adjusted annual rate of 511,000
units last month.
“Treasuries were under pressure throughout the morning with
the belly of the curve underperforming; this has been fully
reversed and then some,” wrote Ian Lyngen, head of U.S. rate
strategy at BMO Capital Markets, after the data.
“PMIs led to a bounce off the lows; taking back the 2-year
auction concession that had been priced in intraday. From here,
we’ll be watching the modest improvement in equities off the
lows as a response to a potentially less hawkish Fed.”
Following the economic numbers, fed funds futures have
priced in a 56% chance of a 50 basis-point (bps) rate hike at
the Federal Reserve’s policy meeting next month, from 54% on
Monday. But the fed funds rate is seen hitting roughly 3.5% by
the end of the year, compared with 3.7% the previous session,
with a peak rate of 3.7% in March 2023, from 3.8% on Monday.
Investors overall are still positioned for hawkish Federal
Reserve comments at this week’s central bank gathering in
Jackson Hole, Wyoming that should entail more interest rate
increases to bring down inflation to the Fed’s 2% target.
Fed Chair Jerome Powell is slated to speak on Friday
“There’s a very good chance Powell is going to be hawkish on
Friday. Accounts are getting prepared for his hawkishness,” said
Tom di Galoma, managing director, Seaport Global Holdings in
“I think the Fed wants to increase rates significantly one
more time in September. I am looking for 75 bps in September.
When it gets into November, it’s a little too close to the
(midterm) elections so maybe they’ll back off a bit,” he added.
In late morning trading, the yield on 10-year Treasury notes
was down 3.5 basis points at 3.000%.
U.S. 30-year Treasury bond yields fell as well,
down 2.3 basis points to 3.218%.
A key U.S. Treasury yield curve measuring the gap between
yields on two- and 10-year Treasury notes, seen as
an indicator of economic expectations remained inverted at
-26.2 basis points.
The inversion on this part of the yield curve historically
foreshadows recession. It has predicted eight of the last nine
recessions, analysts said.
The two-year U.S. Treasury yield, which typically
tracks interest rate expectations, was down 7.7 basis points at
Also later on Tuesday, the U.S. Treasury will auction $44
billion in two-year notes.
August 23 Tuesday 10:58AM New York / 1458 GMT
Price Current Net
Yield % Change
Three-month bills 2.695 2.7516 -0.046
Six-month bills 3.08 3.1723 -0.052
Two-year note 99-133/256 3.2575 -0.079
Three-year note 99-128/256 3.3026 -0.072
Five-year note 98-78/256 3.1231 -0.054
Seven-year note 97-48/256 3.0783 -0.051
10-year note 97-216/256 3.0017 -0.033
20-year bond 98-204/256 3.4589 -0.032
30-year bond 95-212/256 3.2179 -0.023
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 37.50 0.00
U.S. 3-year dollar swap 13.25 -0.25
U.S. 5-year dollar swap 3.75 0.00
U.S. 10-year dollar swap 6.75 0.75
U.S. 30-year dollar swap -30.50 1.00
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu