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Bond Report: 2-year Treasury rate falls below 4.5% after Fed minutes point to slower pace of rate hikes


U.S. bond yields remained lower on Wednesday, with the 10-year rate trading below 3.72%, as investors parsed the Federal Reserve’s November meeting minutes and as global growth concerns continued to reverberate ahead of the Thanksgiving Day holiday.

What’s happening?

The yield on the 2-year Treasury note

fell to 4.476% from 4.517% on Tuesday.

The yield on the 10-year Treasury note

slipped to 3.716% from 3.757% as of Tuesday afternoon.

The yield on the 30-year Treasury note

was at 3.748%, down from 3.827% late Tuesday.

What’s driving markets?

One- through 30-year Treasury yields were lower after minutes of the Fed’s Nov. 1-2 meeting indicated that a “substantial majority” of the Federal Open Market Committee thinks that a slower pace of rate increases “would likely soon be appropriate.”The minutes also revealed that many policy makers were not sure how much higher interest rates will need to go even as they hiked by another 75 basis points at the meeting, lifting the fed-funds rate target to a range of 3.75% to 4%.Read: Fed eyes slower rate hikes as recession threat grows

In data released on Wednesday, weekly initial jobless claims rose by 17,000 to 240,000 in the week that ended Nov. 19, the highest level since August. Consumer sentiment remained depressed after November’s mid-term elections, and S&P Global surveys of business executives point to flagging economic growth. Although durable-goods orders jumped 1% in October, or by more than expected, the momentum is seen as not likely to last as the U.S. economy slows.

The spread between 2- and 10-year Treasury yields shrank to almost minus 80basis points after ending Tuesday’s New York session at minus 76 basis points, its most inverted level since Oct. 5, 1981 — a sign that some say points to an inevitable recession.

U.S. stock exchanges will be closed for Thanksgiving Day on Thursday, Nov. 24, and will reopen the next day for an abbreviated session on Black Friday, the annual end-of-year shopping event, with trading ending at 1 p.m. Eastern on Nov. 25. The bond market also will be closed for Thanksgiving Day and reopen the next day for an abbreviated session and will close at 2 p.m.

Overseas, Chinese cities imposed more COVID-19 restrictions on Wednesday to combat rising virus cases, heightening global economic growth concerns. The global economy is slowing, but economists now think it may not be as bad as initially feared.

What analysts are saying

“It’s Thanksgiving Eve and the Treasury market has edged toward an ever-deepening curve inversion with 2s/10s slipping below -79 bp overnight. The path toward -100 bp has become increasingly easy to envision,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.

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