Treasuries rose to push benchmark yields to the lowest in almost a week ahead of US manufacturing data that will provide insight into potential interest rate cuts by the Federal Reserve. The market was boosted by longer-dated bonds following benign inflation data last Friday, which suggested that the Fed may cut rates at least once this year. Manufacturing PMI and ISM’s manufacturing reading are expected to be released on Monday, with expectations of showing resilience in the world’s largest economy.
According to Michael Kushma, CIO Global Fixed Income at Morgan Stanley Investment Management, the bond market is eager for positive news and is looking for a reason to rally. Markets are closely monitoring each data point as the Fed has indicated that the pace of rate cuts will be based on economic figures. US Treasuries saw gains in May, marking their second gain of the year and the largest since December. This was driven by signs of a cooling job market and easing inflation pressures.
Richard McGuire, head of rates strategy at Rabobank, noted that pricing for Fed rate cuts is becoming more positive, which is helping Treasuries to extend gains from the previous week. Yields on 10-year Treasuries fell for a third consecutive day, reaching the lowest level since May 28. European bonds also saw gains as the region’s manufacturing PMI data was slightly below expectations. The highlight of the week will be US data on May payrolls due on Friday, leading up to the Fed’s policy meeting on June 12. Market indicators show a strong likelihood of a rate cut in December, with increasing odds of a move as soon as September. Overall, there is an implied total of 36 basis points of rate reductions through year-end.