US yields little changed as investors eye trade, weigh Fed comments

NEW YORK – US 10-year Treasury yields were little changed on the session, bouncing off earlier lows as investors awaited developments on the trade situation between the US and China and digested comments from several Federal Reserve officials.

Yields have moved sharply lower since Friday, when US President Donald Trump threatened to raise tariffs on Chinese goods to triple digits, followed this week by both countries charging additional port fees on ocean shipping firms and criticism by US officials of China’s expanded rare earth export controls.

Investors have also been grappling with a lack of economic data due to the ongoing government shutdown.

“Until last Friday, the market seemed to have moved on from trading the potential fallout from the trade war and did instead prefer to focus on the implications from the government shutdown, but now I think that’s what the market’s reacting more to is the escalation in the trade war once again when that wasn’t expected,” said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago.

The yield on the benchmark US 10-year Treasury note fell 0.1 basis point to 4.044% after hitting a session low of 4.009%.

Yields pared declines after Federal Reserve Governor Christopher Waller said he would like a 25 basis point cut at the central bank’s October meeting due to the mixed labor market readings but sees a slower path of cuts should the job market speed up or GDP holds up.

Markets are currently pricing in a 95.7% chance for a 25 basis point cut at the Fed meeting later this month, according to CME’s FedWatch Tool.

“The movement that we’ve seen in Treasury yields has certainly factored in a couple more rate cuts,” said Bianco.

The yield on the 30-year bond shed 0.2 basis point to 4.637%.

Despite the government shutdown, some economic data was still being released. The Philadelphia Federal Reserve Bank said its business activity index dropped to -12.8 this month from 23.2 in September and below the 8.5 estimate of economists polled by Reuters. A reading below zero indicated contraction.

In addition, The National Association of Home Builders/Wells Fargo Housing Market index showed homebuilder sentiment jumped to a six-month high in October amid hopes that declining mortgage rates would stimulate demand for housing.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 53.2 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, edged up 0.4 basis points to 3.51% after falling to 3.483% on the session.

Aside from Waller, Richmond Fed president Thomas Barkin said consumers continue to spend given low unemployment and wage gains, but are more constrained than during the pandemic years while Fed Governor Stephen Miran said that cuts of 25 basis points are too slow of a pace.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.353% after closing at 2.351% on Wednesday, its lowest since July 2.

The 10-year TIPS breakeven rate was last at 2.302%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak, Editing by Nick Zieminski)