Treasurys Gain As Weak Retail Sales Data Erode Rate-Hike Bets
Short-dated Treasuries rose after weak July retail sales data further eroded expectations for Federal Reserve interest-rate hikes in the coming months, which were already crumbling based on employment and inflation data.
The gains briefly pushed the the US two-year yield below 4.10% to the lowest level since June 30. The moves were limited to short-maturity debt that is more sensitive to changes in the outlook for Fed policy, leaving 10- to 30-year yields slightly higher on the day.
“It was a troubling update on the overall health of the consumer,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets. “This will contribute to the case for a Fed pause next month.”
Short-term interest-rate contracts whose rates indicate expectations for Fed rate decisions showed traders exiting wagers on a hike at the September meeting and on more than one rate increase by mid-2027. Only about eight basis points of tightening remained priced in for September, down from nearly 19 basis points on July 31.
The erosion in Fed tightening expectations has gathered pace over the past week, beginning on Aug. 7 when July employment data were weaker than expected, and continuing this week in response to benign July consumer and producer prices data.
This article was provided by Bloomberg News.
