The 10-year U.S. Treasury yield advanced on Thursday as investors digested a range of comments by Federal Reserve officials and what they could mean for interest rates.
The yield on the 10-year Treasury was trading around 4.2%, up more than 5 basis points. The yield on the 2-year Treasury rose by 4 basis points to 4.47%.
Yields and prices move in opposite directions. One basis point equals 0.01%.
These moves come as traders increasingly bet on a September interest rate cut by the Federal Reserve, with a reduction in July now seen as highly unlikely.
Market pricing is pointing to a less than 5% chance that the Fed’s target range for the federal funds rate, its key rate, will be lowered in July, according to the CME FedWatch tool. However, fed funds futures trading data suggests a likelihood of about 95% that the central bank will bring rates down by 25 basis points to a range of 5% to 5.25%.
Jobless claims data released Thursday provided further evidence of a cooling economy, which is good news for those hoping the Fed has seen enough to begin easing monetary policy. Notably, the number of initial unemployment claims came in higher than economists forecasted. Continuing claim volume hit its highest level going back to November 2021.
Fed Governor Christopher Waller on Wednesday said that he thinks cuts are near, but stressed that he will be watching the data closely in the meantime.
“I believe current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress this view,” he said in a speech. “So, while I don’t believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted.”
New York Fed President John Williams shared similar sentiments in an interview with the Wall Street Journal. Richmond Fed President Thomas Barkin, speaking at a business roundtable on Wednesday, said he would “proceed deliberately” when it comes to rate cuts.
“Those remarks cemented the idea that a cut was possible at the meeting-after-next in September, but made clear that officials wanted to see continued progress on inflation before moving,” Deutsche Bank strategists wrote on Thursday.
Earlier this week, Federal Reserve Chair Jerome Powell said interest rates would likely be cut before inflation reaches 2%.
“If you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” Powell said at the Economic Club of Washington D.C. on Monday.
The consumer price index, published last week, showed that prices fell in June on a monthly basis.
— CNBC’s Jeff Cox contributed to this report.
