U.S. Treasury yields declined on Thursday following comments from Federal Reserve Governor Christopher Waller, which eased expectations for an interest rate hike this month. Waller indicated he would support keeping rates steady if upcoming data confirms cooling inflation. Markets now price a 50.4% chance of a rate hike at the Fed's mid-September meeting, down from 63.2% the previous day, according to the CME FedWatch tool.
Key Details
The yield on the benchmark 10-year Treasury note fell 4 basis points to 4.75%, down from a high of 4.81% earlier in the week, the highest level since November 2023. The 2-year Treasury yield, which is more sensitive to Fed policy, slipped 5 basis points to 4.33%. Waller's remarks were seen as dovish, providing relief to investors after a sell-off in global bonds earlier this week.
In separate comments, New York Fed President John Williams described recent inflation data as "encouraging" and attributed the spike in yields to the strength of the economy. The drop in yields contributed to a rally in U.S. stocks, with the Dow Jones Industrial Average rising over 600 points during trading.
Background
Investors reacted positively to the recalibrated rate expectations, with the S&P 500 and Nasdaq 100 also gaining more than 1%. The Dow was reported at 53,695.14, up 1.19%, while the S&P 500 stood at 7,748.14, up 1.06%.
Related coverage: US Treasury Doubles Bond Buybacks Amid Rising Yields.
Falling Treasury yields are likely to bolster equities, particularly in sectors sensitive to interest rates. Investors may seek risk assets as the outlook for rate hikes dims, potentially benefiting stocks and other growth-oriented investments. Watch for the upcoming consumer inflation report, which will provide further insights into inflation trends and influence future Fed policy decisions.
Based on reporting by: livemint.com, businessinsider.com