US Treasury bond yields have stabilized as market participants took a wait-and-see attitude ahead of the publication of the minutes of the last Fed meeting.
The yield on 5-year Treasury bonds fell by 0.7 basis points, reaching 3.694%, while the yield on 30-year bonds was 4.069% (-0.1 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, fell by 0.2 basis points to 3.998%, while the yield on 10-year bonds fell to 3.812% (-0.6 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 18 basis points.
Later today (at 18:00 GMT), the minutes of the Fed's July meeting will be published, which may clarify the prospects for the economy and monetary policy. After the July meeting, uncertainty about the economy and concerns about slowing economic growth at times increased the likelihood of aggressive Fed rate cuts. But recent data on the labor market and retail sales have eased investor concerns. Currently, markets are firmly pricing in a rate cut for September. According to the CME FedWatch Tool, markets see a 31.5% probability of a 0.5% rate cut in September (down from 36% the week before), and a 68.5% probability of a 0.25% rate cut (up from 64% the week before). However, these expectations may change after the publication of the minutes of the July Fed meeting and Fed Chair Jerome Powell's speech on the U.S. economic outlook (on Friday at 14:00 GMT).