The Yield on Treasury Bonds Falls as Investors Await More Data

On Friday, Treasury yields declined as investors anticipated existing home sales data and other economic indicators, while yields in Europe also fell following weaker purchasing managers survey results.

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Current Market Movements

• The yield on the 2-year Treasury note decreased by 3.9 basis points to 4.711% from Thursday's 4.727%.
• The yield on the 10-year Treasury note dropped by 3.3 basis points to 4.23%, down from 4.259% the previous day.
• The yield on the 30-year Treasury note fell by 2.7 basis points to 4.373%, compared to Thursday's 4.397%.

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Market Drivers

On Thursday, bond yields had risen after reports showed weekly jobless benefits at a 10-month high, a slight dip in a Philadelphia Fed business activity survey, and housing starts dropping to their lowest level since June 2020.

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Friday's data release schedule includes:

• S&P flash services and manufacturing purchasing managers surveys for June at 9:45 a.m.
• Existing home sales and leading indicators at 10 a.m.

Investors currently estimate a 65% probability that the Federal Reserve will cut rates by at least 25 basis points by its September meeting, according to the CME FedWatch tool.

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European Market Trends

In Europe, bond yields also fell:

• The French 10-year bond yield decreased by 3.8 basis points to 3.11%.
• Germany’s 10-year yield dropped by 5.9 basis points to 2.374%.

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The euro area composite purchasing managers index (PMI) fell to 50.8 in June from 52.2 in May, reflecting declines in both manufacturing and services sectors. Economists at Capital Economics noted that this sharp drop suggests a solid recovery in the eurozone economy is not guaranteed, with activity stagnating in June. They foresee a pause in rate cuts by the European Central Bank (ECB) in July, followed by two more cuts within the year.

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Specific Observations

Nomura economists highlighted a significant decline in new orders for France, attributing it to "political instability caused by the French election." According to George Moran and his team, a snap election called by President Emmanuel Macron after right-wing gains in EU parliamentary elections has caused turmoil in French markets.

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Overall, the declines in Treasury yields in the U.S. and bond yields in Europe reflect investor responses to recent economic data and political developments. The market is closely watching upcoming data releases and central bank actions to gauge future economic conditions and monetary policy directions.

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