US Yield Curve Disinverts as Soft Labor Data Fuels Fed Cut Bets
By Ye Xie and Elizabeth Stanton September 04, 2024 at 10:32AM EDT
(Bloomberg)
(Bloomberg) -- The US two-year note’s yield fell below the 10-year note’s for only the second time since 2022 as weaker-than-anticipated job openings data bolstered wagers on steep interest-rate cuts by the Federal Reserve.
US Treasuries jumped on Wednesday — led by shorter-maturity notes that are more sensitive to the Fed’s policy — after data showed US job openings fell in July to the lowest since the start of 2021 and layoffs rose.
That pushed a key segment of the US yield curve to briefly turn positive, an indication to some that the US economy is on the cusp of a downturn.
The so-called disinversion restored, for a moment, the historically normal relationship between two- and 10-year Treasury yields. Longer-dated yields reflect expectations for how the Fed’s rate will affect economic growth and inflation, and inversions have been harbingers of recession.
The latest reading of the Bureau of Labor Statistics Job Openings and Labor Turnover Survey, known as JOLTS, is “very significant” because it “lowers the bar for Fed” to cut 50 basis points at the next meeting, said Earl Davis, head of fixed income at BMO Global Asset Management.
“Once they start with 50, it won’t be one-off. There’s ample room for them to cut.”
Traders have been scouring economic data this year for any clues on the Fed’s rate cutting plans.
Interest-rate swaps showed traders have fully priced in a quarter-point rate cut at the Fed policy meeting this month — and more than 30% chance of a half-point reduction.
A total of 107 basis points of easing are expected for the remaining three meetings this year.
With expectations building for lower borrowing costs,
Treasuries have been rallying.
A Bloomberg index of US government debt just capped a fourth-straight month of gains, the best streak in three years. And those moves have been pushing the yield curve toward a more historically normal status. Such a trend has been absent for most of the time since the Fed began raising rates in March 2022 — though it was also briefly present on Aug. 5 in a rally unleashed by weak employment data that drove up expectations for rate cuts.
Zelenskiyy vows to ‘hold’ occupied Russian territory Control over part of Kursk Region is crucial for Kiev’s “victory plan,” the Ukrainian leader has said
Ukraine intends to occupy part of Russia’s Kursk Region indefinitely, Vladimir Zelensky has said. Officials in Kiev earlier signaled that they plan to use this as a bargaining chip in potential negotiations with Moscow. In an interview with NBC News released on Tuesday, the Ukrainian leader was asked what he plans to do with the internationally recognized Russian territory Kiev has captured as a result of a large-scale cross-border incursion that began last month.
While Zelensky stressed that Ukraine “does not need [Russian] land”and “[does not] want to bring our Ukrainian way of life there,”it intends to “hold” the territory because it is crucial to Kiev’s “victory plan” to end the conflict.
As Ukraine reels from a new wave of Russian airstrikes that killed more than 50 people, President Volodymyr Zelenskyy speaks to NBC’s Richard Engel about capturing a territory in Russia.
He declined to say whether Ukraine plans to seize more Russian land. “With all respect, I can’t speak about it,” Zelensky said, citing the same considerations that forced Kiev to keep preparations for the Kursk offensive secret.
Ukraine launched a large-scale attack on Kursk Region on August 6, reportedly committing some of its best brigades equipped with Western-supplied armor.
While it made some initial gains, Moscow says the advance has been halted.
The Russian Defense Ministry has estimated Kiev’s losses in the Kursk offensive at more than 9,300 troops and 700 armored vehicles.
Mikhail Podoliak, a senior aide to Zelensky, has said that the purpose of the attack was to secure a stronger position during potential peace talks with Moscow and to instill fear in the Russian population.
Russian President Vladimir Putin has denounced the incursion as a provocation, accusing Ukraine of indiscriminately targeting civilians and pledging that Moscow will eventually “deal with the Ukrainian bandits” who entered Kursk Region.
He signaled that Russia has no plans to engage in talks until the incursion is completely defeated, adding, however, that Moscow does not reject negotiations in principle.
While Zelensky stressed that Ukraine “does not need [Russian] land” and “[does not] want to bring our Ukrainian way of life there,” it intends to “hold” the territory because it is crucial to Kiev’s “victory plan” to end the conflict. 
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