US Treasury yields fall, market focus shifts to PMI and initial jobless claims data

Zhitong Finance learned that on Thursday, the heavy selling of U.S. Treasury bonds has eased, with the performance of U.S. Treasury bonds outperforming similar bonds globally after three consecutive days of decline. Yields on U.S. Treasury bonds fell across the board, with the 2-year U.S. Treasury bond yield dropping 3 basis points to 4.05% and the 10-year U.S. Treasury bond yield falling 5 basis points to 4.19%. Traders slightly increased their bets on a rate cut by the Federal Reserve, echoing the sentiment in the European markets. The mixed European PMI data released on Thursday indicated an increased expectation for a 50 basis point rate cut by the European Central Bank in December.

In recent days, U.S. Treasury bonds have been under pressure due to concerns arising from signs of a strengthening U.S. economy, as well as increasing speculation that Trump will win the presidential election on November 5th and implement deficit-increasing policies. The 10-year U.S. Treasury bond yield rose to 4.26% on Wednesday, the highest level since July last year.

Elias Haddad, Senior Market Strategist at Brown Brothers Harriman, stated, "This seems more like a technical relief rebound after recent strong selling. The fundamental backdrop reflected by robust U.S. economic activity continues to support rising U.S. Treasury yields."

On Wednesday, the Federal Reserve's Beige Book showed that since early September, economic activity in most parts of the U.S. has been steady, with over half of the regions reporting slight or moderate growth. The report also emphasized concerns about the upcoming election, mentioning over 15 times that the election is a source of uncertainty.

The money market currently expects a 93% probability of a 25 basis point rate cut by the Federal Reserve next month, with a total cut of around 135 basis points by the end of 2025. Michael Tukker, Interest Rate Strategist at Rabobank International, said, "This report does not contain anything to prevent the Fed from cutting rates in November, but it also does not show the urgency for a rate cut larger than the 25 basis points currently expected by the market."

Speculation about Trump winning the election has also pushed up yields, as the market believes his agenda of tax cuts and tariff hikes would stimulate economic growth and inflation. However, Standard Chartered Bank found that the increased likelihood of Trump's election had a greater impact on the recent rise in the U.S. dollar Since the beginning of this month, as yields have started to rise, the open interest in 10-year US Treasury futures has declined on most days, currently at the lowest level in three months. This indicates that the recent selling pressure has been driven by investors unwinding their bond positions, and if selling pressure eases, the market could see a significant rebound.

The focus now shifts to a series of US data to be released later today, including initial jobless claims, PMI for October, and comments from the Cleveland Fed President