Powell "dovish" + US 10-year Treasury bond auction steady, US bond yields all decline
During the congressional hearing, Powell turned dovish, and the steady sale of U.S. 10-year Treasury bonds led to a decline in U.S. bond yields across the board. At the end of Wednesday in New York, the benchmark 10-year Treasury yield fell by 1.8 basis points to 4.282%, while the 30-year Treasury yield dropped by 2.5 basis points to 4.4702%. Powell stated that the Fed has made progress in combating inflation but more evidence is still needed. The market expects a 70% probability of a rate cut in September. Additionally, recent U.S. bond sales have also impacted the bond market performance
According to the financial news app Zhitong Finance, due to Federal Reserve Chairman Powell's "dovish" testimony on the second day of Congress, and the steady sale of the US 10-year Treasury bonds, the demand for bonds increased slightly, leading to a decrease in bond yields across the board.
Data shows that on Wednesday, at the end of the day in New York, the benchmark 10-year Treasury bond yield fell by about 1.8 basis points to 4.282%, the 30-year Treasury bond yield fell by 2.5 basis points to 4.4702%, and the more interest rate-sensitive 2-year US Treasury bond yield dropped by 0.6 basis points to 4.6221%.
Powell stated in the House on Wednesday that the Federal Reserve has made significant progress in combating inflation and does not need to wait for the inflation rate to drop to 2% before starting to cut interest rates. Powell has been avoiding sending any strong signals on interest rates, but he emphasized that policymakers face the risk of acting too fast or too slow.
Subadra Rajappa, head of US interest rate strategy at Societe Generale, said: "Powell's remarks are balanced, and policy decisions will be made 'meeting by meeting'. The market continues to expect a rate cut in September, but it is not set in stone. Sticky inflation data can easily change the probabilities."
Similar to his testimony in the Senate on Tuesday, Powell also stated that he hopes to see more evidence of cooling inflation to support the market's bet on rate cuts this year. Later this week, the June Consumer Price Index (CPI) will be released on Thursday, providing traders with more inflation information.
"Powell reiterated a message that if inflation continues to cool, the Fed should be prepared to adjust rates. This also seems to indicate an increased focus on the labor market," said Mona Mahajan, senior investment strategist at Edward Jones in New York. "It appears that discussions about rate cuts are back on the table for September and December."
Interest rate traders continue to expect two rate cuts this year, with Fedwatch showing a 70% probability of a rate cut in September, and the market expecting a rate cut in both September and December.
Additionally, the recent performance of US bond auctions has also affected the bond market. On Wednesday, the US Treasury auctioned $39 billion of 10-year Treasury notes, with overall auction results being strong and robust.
The bid-to-cover ratio for the 10-year Treasury note auction was 4.276%, significantly lower than the 4.438% from the auction on June 11, marking the lowest level since May. The bid-to-cover ratio for this auction was 1 basis point lower than the pre-issued rate of 4.286%, indicating no tail spread reflecting weak demand for the second consecutive time The $58 billion three-year Treasury notes auctioned on Tuesday had a bid rate of 4.399%, while the yield at the time of issuance, which closed at 1 pm New York time, was 4.407%. This indicates that the market demand for these bonds exceeded expectations.
Bloomberg strategist Cameron Crise stated that the three-year Treasury notes auction went smoothly. The issue price settled at 4.399%, slightly higher than the yield at issuance by nearly one basis point. The demand was stable but not remarkable.
On Thursday, the U.S. government will also issue $22 billion in 30-year bonds