Yields Rise as Attention Turns to the Extent of Further Fed Easing

Treasury yields inched higher Thursday morning as traders assessed mixed U.S. economic data and the potential for a shallower-than-expected rate-cutting cycle by the Federal Reserve.

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Market Movements:

• The yield on the 2-year Treasury rose by 2.7 basis points to 4.452%, up from 4.425% on Wednesday. The previous closing was the lowest since February 7.
• The 10-year Treasury yield increased by 4.5 basis points to 4.188%, from 4.143% on Wednesday, marking its lowest level since March 11.
• The 30-year Treasury yield climbed 4.8 basis points to 4.405%, up from 4.357%, with Wednesday's close being the lowest since June 18.

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Market Drivers:Traders and analysts are now more focused on the potential duration of any rate-cutting cycle by the Fed rather than the timing of the first cut. There is skepticism about the current expectations for the Fed to deliver five to six quarter-point rate cuts by next June.

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“U.S. inflation may continue to stay low in the next few months and allow the Fed to start easing in September,” said Thierry Wizman, global FX and rates strategist at Macquarie. However, Wizman also suggested that the Fed’s easing cycle might be shallower than anticipated.

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Economic Data Highlights:

• Initial jobless claims surged by 20,000 to 243,000 for the week ending July 13, reaching a nearly one-year high. This increase was largely due to a rise in claims in Texas following Hurricane Beryl.
• The Philadelphia Fed’s factory gauge showed improvement, rising to 13.9 in July from 1.3 in the previous month, indicating better conditions for U.S. manufacturing. This marks the sixth consecutive month the index has been above zero.

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Global Perspective:Outside the U.S., the European Central Bank (ECB) kept its main deposit rate steady at 3.75%. When asked about the prospect of a widely anticipated September rate cut, ECB President Christine Lagarde emphasized that the central bank would let incoming data guide their decisions.

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