US Treasury yields fell across the board on Tuesday, with most maturities falling to two-week lows, after a weaker-than-expected reading of a US services sector index for August diminished expectations the Federal Reserve will raise interest rates when it meets next week.
Yields, which move inversely to prices, fell the most in the intermediate sector as US five- and seven-year notes slid nearly seven basis points from late Friday. The US services report came after a softer-than-forecast nonfarm payrolls report on Friday, which showed US employers added 151,000 jobs in August, lower than the 180,000 expected by economists polled by Reuters.
Tuesday's Institute for Supply Management report on service-sector activity showed a drop in the index to 51.4, from 55.5 in July and much lower than the consensus expectation for a reading of 55.7. The drop in the ISM headline index was the steepest since November 2008. "One data point does not make a trend, thus, given industry growth remains in positive territory, albeit minimally above 50, policy officials are unlikely to sound the alarm bell but simply reiterate the need for further information to more clearly understand the ... trajectory of the US economy," said Lindsey Piegza, chief economist at Stifel Fixed Income in Chicago.
Fed funds futures prices indicated that investors see just a 15 percent chance of a rate hike at September's Fed meeting, down from 30 percent before the ISM data. The perceived likelihood of a December rate increase, however, inched up to 50.8 percent in late trading from about 47 percent immediately after the ISM data. Gennadiy Goldberg, interest rates strategist, at TD Securities in New York, said he was looking to upcoming Fed speakers to determine the US central bank's stance after some poor data.
In late New York trading, benchmark 10-year Treasury notes were up 15/32 in price to yield 1.545 percent, from 1.597 percent on Friday. Yields fell as low as 1.536 percent, their weakest since August 26. The 30-year Treasury bond rose 21/32 in price to yield 2.241 percent, from 2.272 percent late on Friday. Earlier, yields slid to a two-week low of 2.223 percent. Prices of two-year notes were up as well, rising 3/32 to yield 0.738 percent, down from Friday's 0.794 percent.