Treasury yields at six-week lows

22 Aug, 2018

US Treasury yields fell to six-week lows on Monday as investors waited on minutes from the Federal Reserve's August meeting on Wednesday and a speech by Fed Chairman Jerome Powell on Friday. Investors are looking for new clues on whether four interest rate hikes are likely this year.
Futures traders are pricing in a 94 percent chance of a rate hike in September, and a 61 percent chance of a further increase in December, according to the CME Group's FedWatch Tool. "It's really going to be all about the minutes and Powell at Jackson Hole on Friday," said Thomas Simons, a money market economist at Jefferies in New York.
Powell is due to speak on Friday at the Kansas City Fed's economic symposium in Jackson Hole, Wyoming.
"It's going to break down to whether or not they take another step down the road towards giving the markets more confidence about future rate hikes," Simons said.
Atlanta Fed President Raphael Bostic on Monday said that he is still expecting three interest rate increases this year.
Benchmark 10-year notes gained 14/32 in price on Monday to yield 2.824 percent, the lowest since July 6 and down from 2.873 percent on Friday. There was no major economic or other news driving market direction.
The yield curve between 2-year and 10-year notes flattened to 23 basis points, the flattest level since 2007.
Bearish positioning in Treasuries, with a large number of investors betting on further yield increases, risks a sharp move lower in yields in the event of a short squeeze and may have contributed to bond strength on Monday.
There has been a "massive increase this week in short positions against 10 &30 yr UST mkts. Highest for both in history, by far," Jeffrey Gundlach, chief executive officer of DoubleLine Capital, said on Twitter on Friday. "Could cause quite a squeeze."
Investors were also focused on trade policy, with China and the United States due to hold lower-level trade talks this month, offering hope that they might resolve an escalating tariff war that threatens to engulf all trade between the world's two largest economies.

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