Bond yields were higher on Monday as calmer conditions across markets softened demand for the perceived safety of government bonds.
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The yield on the 2-year Treasury
TMUBMUSD02Y,
4.194%
climbed 8.5 basis points to 4.194%, according to Dow Jones market data. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.592%
rose 6.5 basis points to 3.584%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.804%
added 5.7 basis points to 3.797%.
What’s driving markets
Treasury yields climbed after data showed that the New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, jumped 35.4 points in April to 10.8.
Economists had expected a reading of negative 15, according to a survey by The Wall Street Journal.
Any reading above zero indicates improving conditions. This is the first reading in positive territory in five months.
See: New York factory index shows increase in activity for first time in five months
Meanwhile, expectations that the Federal Reserve will raise interest rates in a few weeks time have hardened after a report on Friday showed consumers see inflation over the coming year at a higher level than previously thought, while bank earnings appear healthier than expected.
Markets are pricing in an 86.8% probability that the Fed will raise interest rates by another 25 basis points to a range of 5.0% to 5.25% after its meeting on May 3, according to the CME FedWatch tool.
Trader expect the central bank to take its fed-funds rate target back down to 4.6% by December, according to 30-day Fed Funds futures. Traders also appeared to have become less concerned about the chances of sharp vacillations in bonds from surprises in rates.
The BoAML MOVE index, which measures expected volatility in Treasurys, is trading around 120, falling from near 200 in mid March.
For other U.S. economic data, the National Association of Home Builders monthly confidence index rose one point to 45 in April, the trade group said on Monday.
This is the fourth month in a row that sentiment has improved among builders. The slight rise in confidence matched expectations on Wall Street. Richmond Fed President Tom Barkin is due to make comments at 12:45 p.m.
What are analysts saying
“The bond market has acknowledged increased chances of a Fed hike/pause/pivot/cut,” according to Tom Essaye, founder and president of Sevens Report Research.
“But it’s still signaling a looming economic slowdown, and even with yields at current levels, the bond market remains consistent: The economy is going to contract, it’s just a question of bad it will be,” Essaye wrote in a Monday report.
