Treasury yields rose on Thursday after two Federal Reserve officials said they saw no reason to cut interest rates without new economic deterioration, a day after Fed meeting minutes showed policymakers disagreed on the US central bank's rate cut last month. Philadelphia Federal Reserve Bank President Patrick Harker said that he does not see the case for additional stimulus.
Kansas City Federal Reserve Bank President Esther George also said that she would be happy to leave interest rates at current levels unless there are further signs the US economy is changing direction. The Fed cut rates by 25 basis points at the close of its July 30-31 meeting, with minutes for the meeting published on Wednesday showing broad concern among policymakers over a global economic slowdown, trade tensions and sluggish inflation.
Policymakers were divided on cutting rates, however, despite being united in wanting to avoid the appearance of being on the path to further rate cuts. "The thing that was really clear was the fractured lack of on consensus among the policymakers," said Tom Simons, a money market economist at Jefferies in New York.
The bond market has priced in a far more bearish picture on the economy since the Fed meeting. The 2-year, 10-year yield curve inverted last week for the first time since 2007, a signal that a recession is likely in one to two years. The curve moved in and out of inversion on Wednesday and Thursday. A speech by Federal Reserve Chairman Jerome Powell on Friday is the next major focus for clues on future Fed policy.
Interest rate futures traders are pricing in a 91% probability of a rate cut at the Fed's September meeting, according to the CME Group's FedWatch tool. Better-than-expected manufacturing data in Europe boosted risk sentiment earlier on Thursday, reducing demand for Treasuries. US data was mixed, with manufacturing data contracting for the first time since September 2009, while the number of Americans filing applications for unemployment benefits fell sharply last week. Benchmark 10-year notes fell 6/32 in price to yield 1.598%, up from 1.577% late on Wednesday. The 2-year, 10-year curve was last inverted by 0.50 of a basis point.
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