The 10-year yield and other US government bonds slumped on Tuesday, as investors abandoned the prospect of tightening monetary policy following a disappointing ISM survey print of America’s services sector.
The benchmark 10-year yield plummeted to the lowest since February, as fears of an impending sharp increase in inflation began to echo throughout financial markets. The 10-year yield, which moves in opposite direction of its price, had soared to a high of 1.77% earlier in 2021, as investors expected a more hawkish policy crackdown by the Federal Reserve in response to rampant inflation.
The latest ISM services index fell from a record high of 64 to 60.1 in June, while the index of services employment plummeted from 55.3 to 49.3— the lowest since the beginning of the year. The latest figures suggest that although hiring may have accelerated over the past several months, employers continue to struggle to fill vacant positions, meaning that a policy shift from the central bank is not going to happen that soon.
The latest ISM print boosted the rush towards government debt, which has historically performed well during elevated economic uncertainty. Indicators of expected future inflation also fell on Tuesday, as the 10-year breakeven rate plummeted to just above 2.3% at the time of writing. Yields on other government debt, such 20- and 30-year bonds also noted a decline, as investors piled into the long-term Treasuries.
Information for this briefing was found via the Institute for Supply Management. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.