Treasury yields finished higher on Monday, sending the 2-year rate to an almost two-week high, as investors assessed developments in the Israel-Hamas conflict.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
advanced 4.4 basis points to 5.096% from 5.052% on Friday. Monday’s level is the highest since Oct. 3, based on 3 p.m. Eastern time figures from Dow Jones Market Data. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 8.1 basis points to 4.709% from 4.628% Friday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
jumped 8.8 basis points to 4.865% from 4.777% late Friday. - Ten- and 30-year rates have each risen two of the past three trading sessions.
What drove markets
Treasurys sold off on Monday, with investors unwinding haven positions, after Israel did not begin its full ground offensive into Gaza over the weekend. Conditions on the ground have deteriorated due to the conflict, with hospitals near collapse and supplies running out. The U.S. and its allies are boosting efforts to prevent the Israel-Hamas war from engulfing the wider region.
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In data released on Monday, the New York Fed’s Empire State manufacturing gauge slumped to negative 4.6 in October. Oil futures finished lower after posting a sharp gain on Friday, as traders continued to monitor global risks to oil supplies in the wake of the Israel-Gaza war and reports that the U.S. may reach a deal with Venezuela to ease oil sanctions.
Markets are pricing in a 90.1% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by the subsequent meeting in December is priced at 30.3%.
What analysts are saying
“Outside of events in the Middle East it looks [like] a busy week but without an obvious focal point. There is a barrage of Fed speak before their media blackout at the weekend, but Powell’s speech at the Economic Club of New York on Thursday will be the highlight,” strategist Jim Reid and others at Deutsche Bank said.
“The key data point will likely be U.S. retail sales (tomorrow) which we expect to decline (-0.1%) after two strong months, but we also have a lot of U.S. housing data with the NAHB (tomorrow), starts/permits (Wednesday) and existing home sales (Thursday). U.S. weekly jobless claims (Thursday) corresponds to payrolls survey week so will be used to fine-tune estimates,” the Deutsche Bank team said in a note.
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