U.S. Treasury yields fell Thursday, with the 10-year dropping below 4%, after initially moving lower in the wake of a weaker-than-expected survey of economic conditions in the Philadelphia region.
The yield on the benchmark 10-year Treasury was down more than 7 basis points to 3.976%, while that of the 2-year Treasury note decreased by 8 basis points to 3.424%. The 30-year bond yield fell more than 5 basis points to 4.587%.
The 10-year briefly hit 3.967%, its lowest level since April 7, while the 2-year touched 3.412%, its lowest level since Sept. 8, 2022. One basis point is equal to 0.01% and yields and prices move in opposite directions.
The move in Treasurys came as stocks took a tumble, led by declines in bank shares. Traders are growing worried about bad loans, as two recent bankruptcies have suggested that lending standards may have relaxed too much. This, combined with trade tensions and the ongoing U.S. government shutdown, may have some wanting to reduce risk.
Bonds initially moved lower after the Philadelphia Federal Reserve survey of area economic conditions slumped 36 points to -12.8, far below Wall Street economists’ consensus estimate of 9.5. Shipments in the region tumbled 20 points, but new orders rose, employment fell 1 point but was still positive and an expectations index inside the survey was higher.
Also on Thursday, Federal Reserve Governors Christopher Waller, Michael Barr and Stephen Miran, and the central bank’s Vice Chair for Supervision Michelle Bowman, all spoke at various events. Miran and Waller provided conflicting views on how quickly the central bank should lower interest rates in the face of a weakening labor market and heightened geopolitical tensions.
With the U.S. government shutdown now in its third week, investors are paying close attenion to the speeches in the hope of finding clues on the future path of monetary policy. The shutdown means there is an ongoing blackout of official economic data, which has already delayed a crucial print on the shape of the labor market that the Fed would have used to inform its decision making.
Ordinarily, for example, the Bureau of Labor Statistics would have reported the September producer price index on Thursday at 8:30 a.m. ET. The upcoming consumer price index report will be delayed until Oct. 24.
Minutes from the Fed’s September meeting showed its Federal Open Market Committee was divided on how many interest rate cuts were on the horizon. The FOMC is due to meet on Oct. 28-29 to make its next monetary policy decision.
Futures markets are overwhelmingly pricing in a 25-basis-point cut to the Fed’s key interest rate at its next meeting, which lower the overnight fed funds rate to 3.75% to 4.00% from the current range of 4.00% to 4.25%..
— With additional reporting CNBC’s Jeff Cox
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