Treasury Yields Retreat as U.S. Activity Indicator Cools — Market Talk
0859 ET - Treasury yields ease from overnight highs, as manufacturing activity in the New York region slows more than expected. The New York Fed's Empire State general business conditions index for September falls to 7.6 from 20.6. Economists surveyed by WSJ expected 15. Markets expect the Fed to raise interest rates tomorrow, but signs of weakening activity support the case for another hold. Demand for U.S. government debt will be tested at a $13 billion auction of 20-year bonds. Treasury Secretary Bessent testifies to Congress. The 10-year is just below 5%, after reaching 5.040% overnight, its highest since 2007. The two-year cools to 4.648% from 4.688%. ([email protected]; @ptrevisani)0820 ET - Yields on U.K. government bonds fall slightly after the U.K. jobs data showed weakness in the labor market. The U.K. unemployment rate remained relatively elevated at 4.9% in the three months through July, while the number of payrolled employees fell by 26,000 between July and August. Following the data, investors trimmed their expectations of the Bank of England increasing interest rates during Thursday's policy meeting. Markets price in a 33% chance of a BOE rate hike this week, down from a 47% probability on Monday, LSEG data show. Ten-year gilt yields fall 1.9 basis points to last trade at 5.383%, having hit a 19-year high of 5.439% on Monday, LSEG data show. ([email protected])0759 ET - Bitcoin falls as expectations for a U.S. interest-rate rise weigh on risk sentiment and as investors await a pivotal U.S. Senate procedural vote on cryptocurrency legislation. Money market pricing shows a 91% chance of a 25 basis points rate rise by the Federal Reserve on Wednesday, according to LSEG. The vote on the Clarity Act, which would establish a broad regulatory framework for digital assets, will be held later in the day. "Chances of approval remain split, with a likely failure potentially triggering a significant downleg in cryptos," XM analyst Achilleas Georgolopoulos says in a note. "Specifically for bitcoin, the sizeable August price gains could be under threat." Bitcoin drops 2.8% to $76,896, LSEG data show. ([email protected])0747 ET - Inflation expectations reversed in September, with investors anticipating lower instead of higher global consumer prices over the next 12 months, according to the latest Bank of America global fund manager survey. A net 4% of investors expect global inflation to ease, flipping from a net 3% expecting higher inflation in August. ([email protected])0746 ET - Fewer investors expect stronger global economic growth in the next 12 months, Bank of America's September fund manager survey shows. The proportion of investors expecting stronger growth fell to 8% in September from 14% in August. The survey also shows 55% expect no landing, where the global economy continues to grow even as central banks raise rates, compared to 56% in August. Some 38% expect a soft landing, or slowing growth without a recession, up from 34% in August. Just 2% anticipate a hard landing. ([email protected])0743 ET - The biggest threat to sterling is likely to come from October's U.K. budget, Societe Generale's Kit Juckes says in a note. Sterling has held up better against the euro than short-term interest rate differentials would suggest, reacting to improved U.K. growth forecasts for 2026. However, potential fiscal austerity could cast doubts over the U.K. economic outlook, he says. A narrowing U.K.-eurozone rate differential and concerns about tighter fiscal policy suggest sterling could weaken this autumn, he says. The euro rises 0.1% to 0.8560 pounds and SocGen sees the risk of it reaching 0.88 in the fourth quarter. ([email protected])0737 ET - The dollar is considered overvalued by slightly fewer investors in September, Bank of America's global fund manager survey shows. A net 37% of investors say the dollar is overvalued, compared to 39% in August. Meanwhile, a net 13% of investors think sterling is overvalued, up from 8% last month. A net 3% say the euro is undervalued, down from 5% last month. ([email protected])0641 ET - The policy environment is becoming increasingly challenging for the Federal Reserve ahead of Wednesday's interest-rate decision, Allspring Global Investments' Rushabh Amin says in a note. "A firmer growth and inflation backdrop is coinciding with greater uncertainty around fiscal policy and questions regarding fiscal discipline," the portfolio manager for the multiasset team says. This raises the prospect that monetary policy may face greater constraints than in previous cycles, he says. Financial markets have repriced meaningfully in recent months, with higher commodity prices and rising yields contributing to tighter financial conditions, he says. "Yield movements across the Treasury curve have been notably one-directional, reflecting growing confidence that rates may need to remain elevated for longer." ([email protected])0630 ET - Sales of branded goods outpaced own-labels in the U.K. grocery market in August, reversing a defining trend from earlier in the year, Barclays analysts say in a note. For the four weeks to Sept. 6, sales of branded goods grew 3.7% while own label sales grew 2.9%, according to data from Worldpanel by Numerator released Tuesday. However, shoppers still have a strong appetite for promotions, the data provider said. ([email protected])0629 ET - Lazard Asset Management will be eager to see how bond markets will interpret Federal Reserve Chairman Kevin Warsh's commentary in the press conference on Wednesday, chief market strategist Ronald Temple says in a note. Lazard will also watch out for whether investors perceive Warsh to be consistently firm enough regarding fighting inflation, Temple says. The Fed is widely expected to raise interest rates by 25 basis points. Another aspect for Temple to watch is the Summary of Economic Projections to see how Federal Open Market Committee members have shifted their inflation and employment expectations given recent price increases in the energy sector. ([email protected])0622 ET - Capital expenditure by large cloud computing providers, also known as AI hyperscalers, is seen as the most likely source of a widespread credit crisis, the Bank of America global fund manager survey for September shows. A total of 42% of fund managers ranked AI hyperscalers' spending as most likely source of a credit event. Government debt is ranked as the second most likely source of a global credit event, according to 25% of respondents. ([email protected])0611 ET - The Bank of England could keep interest rates unchanged at 3.75% over the coming year due to weakness in the U.K. jobs market, Jefferies' Modupe Adegbembo says in a note. Tuesday's jobs data showed that payrolled employees dropped by 26,000 between July and August, indicating reduced labor demand, Adegbembo says. Markets' pricing of aggressive BOE rate hikes "remains difficult to reconcile with subdued wage growth and soft employment indicators", she says. Investors fully price in four BOE rate rises by mid-2027, and a potential fifth rate increase by November, LSEG data show. ([email protected])