US yields little changed in post-Fed rate cut hangover
By Matt Tracy
U.S. Treasury yields were little changed on Monday, hovering around Friday's levels, as the market appeared to have settled down following the Federal Reserve's first rate cut last week since December 2024.
Yields rose last week despite the central bank's decision to make a 25 basis-point (bp) rate cut and signal more easing at future meetings. The climb was reinforced following stronger-than-expected U.S. unemployment data and generally upbeat mid-Atlantic manufacturing activity.
But yields remained largely level on Monday morning, as the market appeared to have fully digested the Fed cut.
The yield on the benchmark U.S. 10-year Treasury note (US10YT=TWEB) was flat at 4.141% from Friday's close, after hitting a two-week high of 4.145% last week.
The yield on the 30-year bond (US30YT=TWEB) gained 1.3 bps to 4.771%. It has gained for four consecutive trading sessions.
On the shorter end of the curve, the two-year (US2YT=RR) yield, which typically reflects interest rate expectations, was down 0.5 bps from Friday's close at 3.577%.
"There's a little bit of hangover from the Fed meeting," said Tom di Galoma, head of fixed income trading at Mischler Financial. "It's almost like the U.S. market hasn't really opened all that much."
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes (US2US10=TWEB), seen as an indicator of economic expectations, was last around Friday's close at a positive 55.3 basis points.
Markets are currently pricing in a 90% chance of a 25 bp cut at the Fed's October meeting, and 10% odds of a pause. U.S. rate futures have also priced in 44 bps worth of cuts through the end of the year, according to LSEG data.
"There's a lot of complacency on what the Fed will do (at its remaining 2025 meetings)," di Galoma said. "I don't think anyone is thinking they're going to do a tremendous amount between now and then."
St. Louis Fed President Alberto Musalem said on Monday morning that he sees little room for further rate cuts, while Atlanta Fed President Raphael Bostic said the same in an interview with the Wall Street Journal published on Monday morning.
New U.S. Federal Reserve Governor Stephen Miran, who was the sole dissenter at last week's meeting in favor of steeper rate cuts, is set to speak at noon (1600 GMT), as are Cleveland Fed President Beth Hammack and Richmond Fed President Tom Barkin.
The next major economic data will come on Tuesday morning with the S&P U.S. price services and manufacturing index figures.
The Treasury Department is scheduled to auction $69 billion in two-year notes, $70 billion in five-year notes and $44 billion in seven-year notes later this week.
