By Overview
- The yield on the 2-year Treasury BX:TMUBMUSD02Y increased by 5.4 basis points to 5.108%, while the yield on the 10-year Treasury BX:TMUBMUSD10Y rose by 4.6 basis points to 4.625%.
- Additionally, the yield on the 30-year Treasury BX:TMUBMUSD30Y gained 3.6 basis points, reaching 4.739%.
Market Drivers
Traders anticipated a U.S. government shutdown over the weekend that, according to some analysts, could have negatively impacted U.S. GDP growth by 0.1 percentage points per week. This potential scenario could have eased inflationary pressures and made it less likely for the Federal Reserve to raise interest rates in the near future.
Fortunately, a temporary budget deal was agreed upon, avoiding an immediate government closure. This news allowed benchmark 10-year treasury yields to rebound, nearing the recently observed 16-year peaks.
Market Projections
Market projections indicate a 71% probability that the Federal Reserve will keep interest rates unchanged within a range of 5.25% to 5.50% after its upcoming meeting on November 1. The CME FedWatch tool provides this insight.
Furthermore, there is a 38% chance of a 25 basis point rate hike to a range of 5.50% to 5.75% during the subsequent meeting in December.
Based on 30-day Fed Funds futures, analysts do not anticipate the central bank to lower its Fed funds rate target to approximately 5% until October 2024.
U.S. Economic Updates
Manufacturing PMI and ISM Survey
The U.S. economy is set to receive important updates on Monday regarding its manufacturing sector. At 9:45 a.m. Eastern, the final manufacturing Purchasing Managers’ Index (PMI) for September, as measured by the S&P, will be released. This will be followed by the September ISM manufacturing survey at 10 a.m. These reports provide valuable insights into the state of the manufacturing industry.
Construction Spending
In addition to the manufacturing updates, the August construction spending figures will also be published. This data offers key information about the construction sector’s performance, which is a significant driver of economic growth.
Commentary from Fed Officials
Several Federal Reserve officials are expected to make comments during the day. At 11 a.m., Fed Chairman Jerome Powell and Philadelphia Fed President Patrick Harker will speak at a community event in York, Pennsylvania. New York Fed President John Williams is scheduled to address an environmental economics conference at 11:30 a.m., while President of the Cleveland Fed Loretta Mester will give a talk at 7:30 p.m. at the 50 Club of Cleveland.
Japan’s Bond Market
Japan’s bond market experienced some fluctuations as the Bank of Japan made additional purchases of 5 to 10-year bonds in an effort to suppress yields. The benchmark Japanese bond yield recently reached its highest level since 2013 due to inflation consistently exceeding the central bank’s 2% target.
Congressional Action and Government Shutdown
Congress has successfully avoided a shutdown by adopting a stopgap bill that will keep the government open until November 17th. This is positive news as it ensures the timely release of crucial economic data, including Friday’s jobs report. Economist Andrew Hollenhorst from Citi noted that this development increases the likelihood of a 25 basis points interest rate hike at the next Federal Reserve meeting on November 1st.
Hollenhorst also expressed his belief that the consensus overestimated the probability of a prolonged shutdown in October, and he now expects a new spending agreement to prevent a shutdown after the November 17th deadline.
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