The yield on US Treasury bonds mostly rose, while market participants assessed the prospects for economic growth after the aggressive easing of the Fed's monetary policy.
The yield on 5-year Treasury bonds rose by 0.3 basis points, reaching 3.487%, while the yield on 30-year bonds was 4.091% (+1.9 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, fell by 1.1 basis points to 3.563%, while the yield on 10-year bonds rose to 3.741% (+1.3 basis points).
Last week, the Fed cut the interest rate by 0.5%. The Fed also projected a further 0.5% reduction by year-end, a 1% next year, and an additional 0.5% in 2026. According to the CME FedWatch Tool, markets see a 51.2% probability of a 0.25% rate cut at the November meeting and a 50% probability of a 0.50% rate cut in December, with a 0.73% rate cut expected by the end of the year.
Meanwhile, Central Bank Governor Powell stressed that he sees no signs that the risk of an economic downturn is “increased” and said that economic growth continues at a “steady pace.” Investors are now wondering if the Fed's recent actions were good news for the U.S. economy or a sign that it is weakening more than previously thought. This week's new economic data will help clarify this issue, while today the focus will be on preliminary estimates for the PMI indices for September. Economists forecast that the manufacturing PMI rose to 48.5 from 47.9 in August, and the services PMI fell to 55.2 from 55.7. In addition, a host of Fed board members, including Raphael Bostic, Neel Kashkari, Austan Goolsbee and Adriana Kugler, will give a speech today.