US Treasuries rallied Tuesday morning, with the 10-year yield down about 3bp to roughly 5.28 percent and the 30-year steady at 5.66 percent, after both tenors hit fresh 24-year highs earlier this week. Equities also rose, with the S&P 500 and Nasdaq touching new peaks, suggesting the bond bid came from softer policy pricing rather than flight-to-safety demand.
The repricing is stark. Traders now put about 22 percent odds on another Fed rate increase at the October 28-29 meeting, down from 51 percent a week ago, per CME FedWatch data cited by Reuters. Softer payrolls data eased pressure on the Fed to follow its September 15-16 hike, the first in three years, with a back-to-back move. A December hike is still priced at about 86 percent, so the market is deferring rather than abandoning the tightening path.
A PIMCO senior advisor told a London event Tuesday morning that US Treasury yields are “screaming good value.” The 10-year has climbed roughly 26bp since the September 16 hike. Today’s calendar keeps the focus on demand: the Treasury auctions $58 billion of 3-year notes this afternoon, followed by $39 billion of 10-years Wednesday and $22 billion of 30-years Thursday, with FOMC minutes landing Wednesday at 2pm ET.