US Treasury yields extend rebound as Services PMI beats estimates
- Two-year yield climbs as markets reassess Fed rate risks.
- Thirty-year yield stays elevated despite expanded Treasury buyback.
- US PCE, Bessent sanctions and Jackson Hole drive the next catalysts.
US Treasury yields continue their recovery following the announcement of a bond buyback by the US Department of the Treasury, while data reveal that business activity remains solid despite a slowdown in manufacturing.
Yields rise as strong services activity offsets Treasury buyback support
US Treasury yields across the whole curve rose, with the 2-year Treasury yield – the most sensitive to changes to the Fed funds rate – rising five basis points (bps) to 4.24%, while the 10-year benchmark note, rose almos three bps to 4.474%.
The US 30-year bond yield continued to grab headlines on major financial news websites, ending the week at 5.276%, up 2.5 bps, despite the US Treasury announcing it would increase purchases at the long end of the curve from $2 to $4 billion.
Data-wise, the US S&P Global Services PMI improved in August, beating estimates, while the manufacturing index slowed despite moderate growth. Factory prices are affected by disruptions from the US-Iran war, raising energy costs.
In the US, the focus shifts to Treasury Secretary Bessent announcing Iranian sanctions on Monday, the US PCE report, BLS prelim benchmark revisions, and Fed Chair Warsh at Jackson Hole.
The US Dollar Index (DXY), which tracks the performance of the buck’s value against six currencies, is unchanged, down 0.02% at 98.84.
US 10-year Treasury yield chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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