U.S. Treasury yields are declining as traders bet that the U.S. Federal Reserve is now done raising interest rates for the year.
The yield on the benchmark 10-year Treasury bond is down eight basis points at 4.711%, while the yield on the 2-year Treasury note has fallen one basis point to 4.95%, though it had dropped as low as 4.925% in early trading, which was a two-month low.
Yields and prices have an inverted relationship. A one basis point move in Treasury yields is equivalent to 0.01%.
The decrease in bond yields comes after the U.S. Federal Reserve left interest rates unchanged for the second consecutive time, holding its trendsetting Fed Funds Rate in its current range of 5.25% to 5.50%.
Speaking to the media, Fed Chair Jerome Powell did not rule out a further interest rate hike when the central bank meets on Dec. 13 and stressed that rate cuts are not yet being considered.
However, Powell also said that he is starting to see signs that the U.S. economy’s growth is easing. Previously, Powell had said that economic growth in America needs to slow substantially for inflation to fall back to the Fed’s 2% annualized target.
Traders are now betting that the U.S. central bank will again leave interest rates unchanged on Dec. 13, and that the next move by the Fed will be a rate cut by mid-2024.
Prior to the latest Fed meeting, futures traders were betting that there is a 29% chance that the central bank will raise interest rates in December.
Inflation in the U.S. is currently at an annualized 3.7%, down from a peak of 9.1% in June 2022. The Fed Funds Rate is at its highest level in 22 years.
The October jobs report to be released on Nov. 3 will provide a clearer picture on the state of the U.S. labour market.
