10-year Treasury yield slips below 2.79% as IMF warns of severe global downturn and U.S. economic data disappoints

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Most Treasury yields slipped on Tuesday as investors focused on a profit warning by the largest US retailer, disappointing economic data, and the Federal Reserve’s two-day policy meeting which is expected to bring another 75 basis point rate hike.

What yields are doing
What’s driving the market
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Fed-funds futures traders have priced in a 75% chance that the Fed will lift the fed-funds rate by 75 basis points, or three-quarters of a percentage point, when it completes its two-day meeting on Wednesday afternoon. The Fed delivered a 75 basis point rise in June, its first such outsize increase since 1994, and has aggressively lifted interest rates this year as it attempts to curb inflation running at its hottest in nearly four decades.

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Investors fears the Fed could push the economy into a steep slowdown or outright recession in its effort to play catch-up with inflation. The spread between the 10-year and 2-year Treasury rates shrank to minus 25.5 basis points as of 3 pm Eastern time, surpassing the level last seen on Sept. 26, 2000, in a potential recession warning flag.

“Today is the day one of the two-day Fed meeting,” said FHN Financial Chief Economist Chris Low. “The staff economic briefing should — finally — acknowledge the extent of the first half economic slowdown, while the markets desk should acknowledge the extent of disruption in markets… There should also be some evidence of slower inflation.”

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“Gas prices have fallen 13.1% since the week of June 13 thanks to a drop in miles driven. Because gas prices are highly inelastic — it takes a bigger change in price to induce a change in consumption than for other goods and services — consumer capitulation here should indicate a broader change in behavior extending to the rest of the economy,” he wrote in a note. “None of this will deter the Fed from hiking 75bp tomorrow, but it does set the stage for signaling slower rate hikes to come. ,

Meanwhile, US stocks remained lower through the final hour of trading on Tuesday after disappointing earnings from retail giant Walmart Inc. WMT,
late Monday showed consumers are feeling a pinch from inflation.

The global economy is facing the possibility of a severe downturn that would rank in the bottom 10% of outcomes since 1970, the International Monetary Fund warned Tuesday in an update to its closely-followed World Economic Outlook report.

In US data on Tuesday, the S&P CoreLogic Case-Shiller 20-city index decelerated in May. The US consumer-confidence index from the Conference Board fell to 95.7 in July, and new home sales plunged 8.1% to a seasonally-adjusted rate of 590,000 in June, the lowest since the pandemic.


Credit: www.marketwatch.com /

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