Two-year Treasury yields rose for a ninth straight session on Tuesday as traders priced in an environment of higher-for-longer interest rates.
Meanwhile, worries about a resolution of the debt-ceiling debate in Congress were on full display in the Treasury-bill sector, where yields on debt maturing between June 6-15 headed toward 6%.
What happened
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The yield on the 2-year Treasury
TMUBMUSD02Y,
4.564% rose 1.5 basis points to 4.333% from 4.318% on Monday. It’s up 43.4 basis points over the last nine trading days, the longest such streak since the 10-day trading period that ended on Sept, 20, 2018, according to 3 p.m. Eastern time figures from Dow Jones Market Data. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.756% declined 2.1 basis points to 3.696% from 3.717% as of Monday afternoon. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.906% fell 1.8 basis points to 3.951% from 3.969% late Monday.
What drove markets
Earlier on Tuesday, investors had been mostly focused on the positive aspects of Monday’s meeting between President Joe Biden and House Speaker Kevin McCarthy, who both said that their talks were “productive.”
As the trading day wore on though, reports emerged of McCarthy speaking to House Republicans on Tuesday and saying that negotiators aren’t anywhere near a deal yet. The reports caused traders to fret over whether the government could default on its obligations next month, with rates on T-bills maturing between June 6-15 close to or above 6% in a sign of increased nervousness.
Treasury Secretary Janet Yellen has repeatedly warned that the U.S. may not be able to pay its bills as soon as June 1 if an agreement to raise the debt ceiling is not reached. However, GOP Republicans are expressing growing skepticism over that date.
Meanwhile, the yield on 2-year Treasurys rose for the ninth consecutive session on Tuesday, a day after St. Louis Fed President James Bullard said he would like to see two more quarter-of-a-percentage-point interest-rate hikes this year.
Markets are pricing in a 73% probability that the Fed will leave interest rates unchanged between 5%-5.25% on June 14, according to the CME FedWatch Tool. Traders also see a 27% chance that the Fed will deliver another quarter-point hike instead next month, according to 30-day Fed Funds futures.
In U.S. economic data released on Tuesday, the S&P flash U.S. services index climbed to a 13-month high of 55.1 in May from 53.6 in the previous month.
What analysts are saying
“What could be making some investors nervous is that some House Republicans might not be convinced that the X-date of June 1 is accurate or that a default would be the end of the world. If the actual X-date ends up being closer to June 7, that means we could see market stress build up leading to that point,” said Ed Moya, senior market analyst for the Americas at OANDA Corp.
