Treasury yields remained lower on Friday, following soft U.S. manufacturing-related data for November and as traders assessed fresh comments from Federal Reserve Chairman Jerome Powell.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
was 4.605%, down 11 basis points from 4.715% on Thursday. It touched an intraday low of below 4.6% during the New York session. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
was 4.272%, down 7.7 basis points from 4.349% Thursday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was 4.455%, down 5.6 basis points from 4.511% late Thursday.
What’s driving markets
In data released earlier on Friday, S&P Global’s final U.S. manufacturing PMI reading was unchanged at 49.4 for November versus its preliminary reading. The Institute for Supply Management’s manufacturing index for last month was also unchanged at 46.7%. Readings below 50% indicates a contraction in activity.
Read: Manufacturers still treading water, ISM survey shows: ‘Demand remains soft.’
Yields moved lower after the data came out on renewed buying of government debt. Whether Treasurys can continue to rally will be determined in large part by monetary policy expectations.
On Friday, Fed Chairman Jerome Powell pushed back on expectations for a rate cut next year, by saying in prepared remarks that officials are still prepared to tighten policy further if needed. Interestingly, his remarks only extended Friday’s Treasury rally.
For all of November, 10- and 30-year yields had their steepest monthly declines since August 2019, fueled by expectations that easing inflation will prompt the Federal Reserve to back off further rate hikes and possibly cut borrowing costs next year. The 10-year rate fell 52.5 basis points, while its 30-year counterpart declined 51.1 basis points last month.
What strategists are saying
November’s impressive rally in the Treasury market “reflected not only the progress made by the Fed toward re-establishing price stability and rebalancing the labor market, but also an acknowledgment on the part of monetary policy makers that rate hikes for this cycle are most likely over,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a note.
“Investors have been quick to move on to debate the timing of the first Fed cuts while the Fedspeak has pushed back, instead choosing to message that lowering policy rates won’t be on the agenda for the foreseeable future,” they wrote.
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