2-, 10-year Treasury yields bounce off 2024 lows after August retail-sales data

By Vivien Lou Chen

Treasury yields rose slightly on Tuesday, but remained not far from their lowest closing levels in up to two years, after August's retail-sales report pointed to a U.S. economy that remains stable.

What happened

The yield on the 2-year Treasury BX:TMUBMUSD02Y rose 3.6 basis points to 3.590%, from 3.554% on Monday. Monday's closing level was the lowest since Sept. 8, 2022.The yield on the 10-year Treasury BX:TMUBMUSD10Y advanced 1.9 basis points to 3.641%, from 3.622% on Monday. Monday's closing level was the lowest since June 1, 2023.The yield on the 30-year Treasury BX:TMUBMUSD30Y fell 1.7 basis points to 3.953%, from 3.936% on Monday. Monday's closing level was the lowest since July 26, 2023.

What drove markets

In data released on Tuesday, U.S. retail sales rose slightly in August, but not by enough to move the needle much on the debate over whether the Federal Reserve will cut interest rates by 25 basis points or 50 basis points on Wednesday. Sales inched up 0.1% last month, versus a 0.2% decline that had been expected by economists polled by the Wall Street Journal.

Fed-funds futures traders priced in a 63% probability that the Fed will cut interest rates by a half of a percentage point from the current range of 5.25% to 5.50% after its two-day meeting concludes on Wednesday, according to the CME FedWatch Tool. They see only a 37% chance of a quarter-point reduction.

Treasury yields were still around some of their lowest levels of the year on Tuesday, as the Federal Open Market Committee kicked off its meeting.

See also: This part of the Treasury market may move the most on a Fed interest-rate cut

"Although current market pricing sees the Federal Reserve announcing a 50-basis-point rate cut this week, we think a 25-basis-point move is marginally more likely," said Neil Shearing, group chief economist at Capital Economics.

"There is a case for the Fed beginning its easing cycle with a bigger move, but recent history shows how 50-basis-point cuts are often associated with far more challenging economic environments than today's," Shearing wrote in a note.

In other data released Tuesday, industrial production climbed by 0.8%, or more than expected, in August - which was seen as a short-lived boost tied to automobiles.

Meanwhile, Treasury's $13 billion auction of 20-year bonds was "weak" and tailed by 2 basis points, according to BMO Capital Markets strategist Vail Hartman.

-Vivien Lou Chen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-17-24 1543ET

Copyright (c) 2024 Dow Jones & Company, Inc.