Optimism About Fed Pivot Contributes To Pullback By Treasury Yields

After ending the previous session modestly lower, treasuries showed a significant move back to the upside during trading on Tuesday.

Bond prices gave back some ground after an early rally but remained notably higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 12.6 basis points to 4.108 percent.

With the steep drop on the day, the ten-year yield pulled back sharply after ending the previous session at a fourteen-year closing high.

The rally by treasuries came as traders continue to express optimism the Federal Reserve will signal a slower pace of interest rate hikes following its meeting next week.

The Fed is widely expected to raise interest rates by another 75 basis points next week, although CME Group’s FedWatch Tool shows the chances for a 50 or 75 basis point rate hike in December are split roughly fifty-fifty.

While public comments from Fed officials have largely been hawkish, a recent report from the Wall Street Journal suggested some are growing uneasy about the impact the aggressive rate hikes are having on the economy.

On the U.S. economic front, the Conference Board released a report showing U.S. consumer confidence pulled back by much more than expected in the month of October.

The Conference Board said its consumer confidence index slumped to 102.5 in October from a revised 107.8 in September. Economists had expected the index to dip to 106.0 from the 108.0 originally reported for the previous month.

“Consumer confidence retreated in October, after advancing in August and September,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Notably, concerns about inflation—which had been receding since July—picked up again, with both gas and food prices serving as main drivers.”

She added, “Looking ahead, inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers.”

Meanwhile, bond traders largely shrugged off the results of the Treasury Department’s auction of $42 billion worth of two-year notes, which attracted average demand.

Trading on Wednesday may be impacted by reaction to a report on new home sales as well as the results of the Treasury’s auction of $43 billion worth of five-year notes

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