BOND REPORT: Two-year Treasury Yield Tumbles After Fed's Williams Lays Out Case For Insurance Rate Cuts
July 18 2019 - 3:49PM
Dow Jones News
By Sunny Oh
New York Fed President John Williams indicates support for
preemptive rate cuts
Short-term Treasury yields fell sharply on Thursday after a
senior Federal Reserve official suggested the U.S. central bank
should act early and decisively to signs of economic weakness.
What are Treasurys doing?
The 10-year Treasury note yield was down 1.9 basis points to
2.040%, while the 2-year note rate , sensitive to shifting
expectations for Fed policy, slipped 5.7 basis points to 1.776%.
The 30-year bond was flat at 2.568%. Debt prices move in the
opposite direction of yields.
The German 10-year government bond yield fell 2 basis points to
negative 0.35%.
What's driving Treasurys?
Expectations for a half percentage point rate-cut received a
boost after New York Fed President John Williams said it made sense
to ease policy before economic data deteriorated materially. "When
you have only so much stimulus at your disposal, it pays to act
quickly to lower rates at the first sign of economic distress,"
Williams said.
Traders in the fed funds futures market now see more than a one
in two chance of a 50 basis point rate cut by the Federal Reserve
at its July 30-31 meeting.
Investors saw fresh signs that U.S. and China had yet to resolve
previous stumbling blocks that have stymied past trade negotiations
and led to weaker economic data. President Donald Trump complained
on Tuesday that China was not delivering on their pledges to buy
more U.S. agricultural imports. News reports also say the Trump
administration was unsure how to ease restrictions on Huawei
Technologies Co without triggering national security issues
(https://www.wsj.com/articles/u-s-china-talks-stuck-in-rut-over-huawei-11563393280).
What did market participants' say?
"In the event of a half-point, the market narrative will
vacillate between 'Powell has no idea what to do' and 'the Fed sees
something we don't'. Whether or not the risk to credibility and
communicating that greater troubles are ahead is worth the value of
a 'surprise' in easing financial conditions more dramatically will
undoubtedly be part of the Committee's discussion," said Ian
Lyngen, head of U.S. rates strategy for BMO Capital Markets.
"At the end of the day, barring any pressing deterioration
evident in the hard data, it's a challenge to see the Fed jumping
so far in front of an actual slowdown," wrote Lyngen.
(END) Dow Jones Newswires
July 18, 2019 15:34 ET (19:34 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.