As a Crucial Week for the Fixed-income Market Begins, Bond Yields Dip

Yields on U.S. government debt fell on Monday morning ahead of the Treasury’s afternoon announcement regarding its borrowing needs for the upcoming quarter, alongside significant central-bank decisions anticipated this week.

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Current Yields

• The yield on the 2-year Treasury (BX) was 4.375%, a slight drop of 1.3 basis points from 4.388% on Friday, marking the lowest level since February 2.
• The yield on the 10-year Treasury (BX) was 4.161%, down 3.8 basis points from 4.199% on Friday, the lowest since July 18.
• The yield on the 30-year Treasury (BX) was 4.412%, a decline of 4.4 basis points from 4.456% on Friday.

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Market Drivers

Traders are preparing for a busy week, beginning with the Treasury's financing estimate release at 3 p.m. Eastern time on Monday. The market reaction will depend on any changes to the previously announced $847 billion total borrowing estimate for the July-September quarter, as noted by Will Compernolle, a macroeconomic strategist at FHN Financial in New York.

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Additionally, this week will see policymakers from Japan, the U.S., and the U.K. convening to make significant decisions. The expectation that the Federal Reserve will announce its first quarter-point rate cut in September contributed to the continued rally in U.S. government debt on Monday morning.

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Strategists Ian Lyngen and Vail Hartman from BMO Capital Markets highlighted that with recent rate cuts from the European Central Bank, Bank of Canada, and the Swiss National Bank, the potential for a September Fed cut is strengthened.

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They noted that divergences between major central banks tend to be short-lived as the overall policy tide begins to turn. This makes a September Fed cut more likely compared to a move on Wednesday, primarily because the Federal Open Market Committee will have the benefit of two additional consumer price index (CPI) reports before making their mid-September decision.

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