US | Treasury yields level off as markets await August data

Summary

Treasury yields look to have stalled after July’s surge. It seems that softer-than-expected July data left markets hesitant to take a strong directional view before August inflation and employment figures arrive.

Key points

• Key points:
• The CPI and payrolls reports due over the next two weeks will help determine whether the market’s hiking bias, in place since May, is reinforced or fades further.
• Despite the recent moderation in policy expectations, the bigger picture is that Treasury yields keep signaling that there’s no room for the Fed to resume the easing cycle.
• Real yields sitting near recent highs signal that a growing term premium, rather than a short-term reassessment of the inflation outlook is pushing rates higher.
• Ahead of Warsh’s Jackson Hole remarks tomorrow, subdued bond market volatility— well below historical averages —points to limited signs of financial strains.
• The August Survey of Professional Forecasters showed that respondents now have a slight hiking bias and expect the 10-year Treasury yield to hover closer to 4.5% than to 4.0%.

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