Treasury Yields Dip Amid Global Economic Concerns and Reduced Borrowing

On Tuesday morning, Treasury yields experienced a decline due to several factors that boosted the attractiveness of U.S. government bonds. The yields remained within a range of approximately 4.82% to 5.02%, consistent with their fluctuations over the past two weeks.

Concerns over the contraction in China’s manufacturing sector in October have raised doubts about global economic strength, which in turn has encouraged increased investments in fixed income assets. This trend was further reinforced by the U.S. Treasury’s decision to reduce borrowing for the quarter, leading to a decrease in paper issuance.

In a related development, the Bank of Japan’s slight modification to its ultra-loose monetary policy suggests that low interest rates in Japan will continue. This situation enhances the appeal of U.S. bonds, given the yield differential between U.S. and Japanese securities.

Market expectations currently point to a 24.5% chance of a 25 basis point rate hike in December. However, forecasts indicate that the central bank is unlikely to lower its Fed funds rate target to around 5% until August 2024, according to the 30-day Fed Funds futures.

Important economic indicators to closely monitor include the third-quarter employment cost index, the August S&P Case-Shiller home price index, and consumer confidence data for October.

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