US 10Y TREASURY: September?

5 Agu

During the previous week the 10Y US benchmark rates reached the lowest weekly level at 3.78%, and moved down from the support line at 4.2%. There are two major reasons for such a strong drop in Treasury yields. The first was on Wednesday when Fed Chair Powell noted a potential for a rate cut in the future period, which market perceives to be September`s FOMC meeting, and the second reason was surprisingly weak jobs data posted on Friday. The posted non-farm payrolls for July were significantly weaker from market expectations, reaching 114K, from 175K expected by the market. At the same time, the unemployment rate reached 4.3%, again higher from 4.1% estimated by the market. There is currently fear among investors that the US might slip into recession, however, there are also analysts who are noting that weak figures might be due to seasonal effects. Surprisingly weak jobs data led investors to increase odds for more than one rate cut during the course of this year. Also, there is currently 58% chances by market expectations, that the Fed will cut rates by 50 basis points.

After such a strong move in Treasury yields, it could be expected that the market will slowly digest the Friday`s data and adjust positions accordingly. In this sense, there is a probability that the yields would revert a bit to the upside, at least to the level of 3.9%. However, at this point levels around 4.0% are questionable.