Most Treasury yields turned higher Tuesday morning as traders focused on the potential for a mid-November government shutdown and the lack of a ground invasion by Israel of Gaza.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
jumped by 5.9 basis points to 5.119% from 5.060% on Monday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 4.4 basis points to 4.88% from a one-week low of 4.836% Monday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
rose 2.7 basis points to 5.015% from 4.988% late Monday.
What’s driving markets
Two- through 30-year yields turned higher as flight-to-safety trades from Monday faded and traders focused on the outlook for U.S. politics and the lack of major escalation in the Middle East war.
The militant group Hamas released two hostages on Monday as Israel ramped up airstrikes and didn’t proceed with a ground assault yet. The war has mostly sent investors into two groups of traditional haven assets: gold and the Swiss franc.
Back in the U.S., House Republicans continued to fight over who to elect as speaker, with Rep. Tom Emmer of Minnesota currently seen as having the best chances of scoring the position.
In economic data released on Tuesday, the S&P U.S. services purchasing managers index for October rose to a three-month high of 50.9 for October, while the manufacturing PMI climbed to a six-month high of 50.0.
See: Economy gets off to good start in the fourth quarter, S&P finds
Treasury will auction $51 billion of 2-year notes at 1 p.m. Eastern time.
Markets are pricing in a 99.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by the subsequent meeting in December is now priced at 24.7%, down from 38.5% a week ago.
What analysts are saying
“With the pre-FOMC silent period underway and a light data calendar the first half of the week, political developments and coupon auctions are the most likely culprits for significant changes in the Treasury market before the Q3 GDP release Thursday,” said Will Compernolle, macro strategist at FHN Financial in New York.
“Israel’s ground invasion of Gaza that felt imminent has still not happened, reversing some flight-to-safety trades the last couple weeks, but the risk of escalation will still be in the spotlight for the foreseeable future,” he wrote in a note. “The U.S. House of Representations is going on three weeks without a permanent speaker, no Republican representative is breaking through as likely to get the requisite number of votes, and a potential mid-November government shutdown looms over the whole process.”
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