Traders see rising chance of a quarter-point cut
US Treasury yields rose Monday as investors increased bets on a Federal Reserve interest rate cut at its December meeting, according to market data.
The 10-year Treasury yield was up by more than 2 basis points to 4.044%, and the 30-year bond yield increased by 3 basis points to 4.702%, The 2-year note yield increased less than a basis point to 3.497%. One basis point equals 0.01%, and yields move inversely to prices.
Traders are now pricing in a nearly 88% chance of a quarter-percentage-point cut at the Fed’s Dec. 9-10 meeting, up from 85% on Friday, according to the CME FedWatch Tool. The higher probability follows Friday’s trading disruption at the Chicago Mercantile Exchange, where a data center cooling issue temporarily halted bond trading in the early morning.
“While this data is old and from September, it’s the only inflation data the Fed has to base its current decisions off of,” said Clark Bellin, president and chief investment officer at Bellwether Wealth, referring to delayed economic reports.
Recent economic indicators have painted a mixed picture of the US economy. Payroll processor ADP reported that private companies shed 13,500 jobs per week on average over the last four weeks, significantly higher than the 2,500 weekly jobs lost in the prior update. Meanwhile, consumer confidence fell to 88.7 in November, the lowest level since April, missing the Dow Jones forecast of 93.2, CNBC reported.
However, the September producer price index showed core PPI rising a cooler-than-expected 0.1%, below economists’ forecasts of 0.2%. Bellin noted the reading “helps to justify the argument for another Federal Reserve rate cut in December, since it’s clear that inflation is under control, giving the Fed the opportunity to focus more on the labor market, which has been cooling in recent months.”
Investors will monitor several key economic reports this week, including the ISM Manufacturing PMI on Monday, the ADP Employment Report on Wednesday, and weekly initial jobless claims on Thursday. The delayed personal consumption expenditures index for September will conclude the week Friday.
Fed officials remain in a pre-meeting communications blackout ahead of the December decision, making economic data the primary focus for investors seeking clues about the interest rate decision. The Fed previously cut its benchmark overnight borrowing rate by a quarter percentage point at both its September and October meetings.
