Treasury yields slip as traders eye raft of jobs data this week

By Jamie Chisholm

U.S. bond yields fell early Tuesday ahead of a busy few days of labor market data that will help determine the pace of Federal Reserve interest rate cuts in coming months.

What's happening

The yield on the 2-year Treasury BX:TMUBMUSD02Y slipped by 1.8 basis points to 3.629%.The yield on the 10-year Treasury BX:TMUBMUSD10Y fell 3.1 basis points to 3.756%.The yield on the 30-year Treasury BX:TMUBMUSD30Y retreated 3.9 basis points to 4.084%.

What's driving markets

Government bond yields fell as concerns about a struggling European economy pushed the benchmark 10-year German bund yield down 6.2 basis points to just 2.067, the lowest of the year.

Fears about the impact on the U.S. economy of a prolonged strike by dock workers was also encouraging buying of government paper.

See also: Ports strike could have $4 billion daily impact, but these container stocks are well positioned

In addition, yields were suppressed by fresh falls in crude oil prices (CL.1), which were seen reducing inflationary pressures. Data released Tuesday showed eurozone inflation dropping to 1.8% in September, below the European Central bank's 2% target.

Meanwhile, investors continued to absorb comments the previous day from Fed Chair Jerome Powell in which he said the U.S. economy was "in good shape" and that if it performs as expected, "that would mean two more cuts this year, a total of 50 more [basis points]."

"Powell's remarks led to some doubts over whether the aggressive pace of the easing cycle priced by markets would materialize," said Jim Reid, strategist at Deutsche Bank.

"While maintaining data-dependence, he emphasized that the economy remains solid, noting that 'this is not a committee that feels like it's in a hurry to cut rates quickly'," Reid added.

Crucial to the likely pace of interest rate cuts is the labor market. And investors will have plenty of new information in that regard over the next few days, with the job opening, or JOLTs, report for August on Tuesday at 10:00 a.m. Eastern, and culminating with Friday's nonfarm payrolls report for September.

Other data coming on Tuesday include the S&P final U.S. manufacturing PMI for September at 9:45 a.m. Eastern, and at 10:00 a.m. the U.S. ISM manufacturing report for September, and U.S. construction spending for August.

Ahead of all that, markets are pricing in a 64.7% probability that the Fed will cut interest rates by at least 25 basis points from the range of 4.75% to 5.00% after its next meeting on November 7, according to the CME FedWatch tool.

The chances of a 50 basis point rate cut have fallen from 58.2% a week ago to 35.3%. The central bank is expected to take its Fed funds rate target down to around 4.32% by December, according to 30-day Fed Funds futures.

-Jamie Chisholm

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10-01-24 0525ET

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