Yield on 2-year Treasury ends at lowest in two years after big drop in consumer confidence

By Joy Wiltermuth and Jamie Chisholm

Short-term U.S. bond yields logged a fresh one-year low on Tuesday, after a reading on consumer confidence in the economy showed its biggest monthly drop since mid-2021.

Yields across the curve initially rallied after the People's Bank of China revealed an extensive stimulus package designed to revive the world's second-biggest economy, but ended the session mixed.

What's happening

The yield on the 2-year Treasury BX:TMUBMUSD02Y fell by 2.8 basis points to end at 3.549%, the lowest level since Sept. 8, 2022, according to Dow Jones Market Data.The yield on the 10-year Treasury BX:TMUBMUSD10Y declined by less than 1 basis point to 3.736%.The yield on the 30-year Treasury BX:TMUBMUSD30Y edged up less than 1 basis point to 4.089%.

What's driving markets

Government bond yields ended mixed Tuesday, after a weak reading on consumer confidence.

Instead of rising as Wall Street expected, the index of consumer confidence fell to 98.7 in September from a revised 105.6 in August, according to the Conference Board, pointing to anxiety about the labor market ahead of November's U.S. presidential election. It was the biggest one-month decline since mid-2021.

Read: Consumer confidence plunges on weaker job market and high cost of living. Americans are anxious ahead of election.

"It's never good to see consumer confidence fall this much," Jamie Cox, managing partner at the Harris Financial Group, said in emailed comments.

"Consumers are clearly concerned about the implications of the upcoming election, the increasing conflict around the world, and the stubbornly high cost of food and credit," Cox said. "The Federal Reserve seldom reads the tea leaves correctly on when and how much to cut rates, but 50 seems more correct in light of these data."

The benchmark 10-year Treasury yield BX:TMUBMUSD10Y edged down from a session high of about 3.8% earlier in the session, according to FactSet.

Federal Reserve Gov. Michelle Bowman on Tuesday said that inflation remains more of a concern than potential weakness in the labor market. She disagreed with the Fed's decision last week to lower rates by half a percentage point.

Bond yields initially rose across developed economies Tuesday as investors priced in stronger global economic growth following news of Beijing's big stimulus package.

The chances of the Fed cutting rates by another 50 basis points at the next policy meeting in November were at 58.2% on Tuesday, up from 53% on Monday, according to the CME FedWatch tool.

The Treasury's $69 billion auction of 2-year notes went "decently well," according to Will Compernolle, macro strategist at FHN Financial.

"The yield that the auction awarded was 'on the screws,' or equivalent to the 'when-issued' yield at the competitive deadline," Compernolle said in an email to MarketWatch.

"I read this as confirmation that the policy-sensitive part of the Treasury curve has settled into its post-FOMC pricing at this point," he said.

Bond traders remain confident in 75 basis points of additional rate cuts this year, with around 125 basis points of easing next year, he said.

-Joy Wiltermuth -Jamie Chisholm

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

09-24-24 1637ET

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