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Treasury Yields Steady as U.S. Awaits Presidential Election and Fed Decision

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U.S. Treasury yields remained nearly stable on Tuesday morning as investors anticipated the outcome of the U.S. presidential election. As of 4:45 a.m. ET, the yield on the 10-year Treasury note was down slightly, by less than one basis point, at 4.3029%. Similarly, the 2-year Treasury yield was also marginally lower at 4.1681%. Yields, which move inversely to bond prices, had little movement as markets braced for election results and further economic indicators.

The U.S. presidential election has been a focal point for investors, with polling suggesting a tight race between Vice President Kamala Harris and former President Donald Trump, both tied at 49% in the latest NBC News poll. In addition to the presidency, control of Congress remains in question. A divided Congress could limit either candidate’s ability to push through major policy changes, while a single-party majority would likely enable broader shifts in spending and tax policies.

Beyond election results, investors are also keeping an eye on upcoming economic data and Federal Reserve policy. The October ISM Services PMI, scheduled for release later on Tuesday, will provide insights into the growth rate of the U.S. service sector, potentially highlighting trends in economic health. Additionally, the Census Bureau reported on Monday that factory orders for September fell by 0.5%, aligning with economists’ expectations and reflecting ongoing adjustments in the manufacturing sector.

Looking ahead, the Federal Reserve’s policy meeting on Thursday is expected to draw significant attention. Market participants are widely expecting the Fed to announce a quarter-point rate cut, building on a larger, half-point cut in September. The CME Group’s FedWatch Tool currently indicates a 98% probability of the cut, reflecting widespread anticipation of more accommodative monetary policy as the economy navigates ongoing uncertainties.

 

10-Year Treasury Yield Dips Slightly as Traders Weigh Fed Officials’ Comments

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The yield on the 10-year U.S. Treasury saw a slight dip early Wednesday as bond traders processed recent remarks from Federal Reserve officials regarding the future of interest rates. As of 2:15 a.m. ET, the yield on the 10-year Treasury had fallen by over 1 basis point to 4.021%, while the 2-year Treasury yield was also down, dropping 1 basis point to 3.941%. Yields and bond prices move inversely, with one basis point equaling 0.01%.

The bond market reopened Tuesday following the Columbus Day holiday, and traders have since been grappling with mixed signals from various Fed representatives about the trajectory of monetary policy.

Mixed Messages from the Federal Reserve

On Monday, Minneapolis Fed President Neel Kashkari hinted that any future interest rate cuts would likely be “modest,” stressing that decisions will continue to hinge on incoming economic data. In a similar vein, Fed Governor Christopher Waller urged caution in reducing rates too soon, indicating that the economy is still showing signs of resilience.

However, on Tuesday, San Francisco Fed President Mary Daly took a different stance, suggesting that the Fed still has room to lower interest rates further. Daly highlighted that rates are still far from their “neutral” level, where the economy can stabilize without stimulating or restricting growth. She noted that this neutral rate could be higher than in previous economic cycles, implying that the process of adjusting rates downward may take longer than expected.

“We’re a long way from where it’s likely to settle,” Daly remarked, emphasizing the challenges in determining the speed at which rates will approach their neutral level. This uncertainty has led traders to cautiously adjust their positions in the bond market.

A Pause in Fed Activity

No Federal Reserve officials are scheduled to speak on Wednesday, and there are no major economic data releases expected. This temporary pause in public remarks allows bond traders to further digest recent statements and assess the broader economic landscape, particularly as they wait for future indicators that could offer more clarity on the Fed’s path forward.

Weekly Mortgage Demand Remains Flat Despite Lowest Rates Since April 2023

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Mortgage rates fell for the fourth consecutive week, hitting their lowest level since April 2023, but the impact on mortgage demand was minimal. Total mortgage application volume increased by just 0.5% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances dropped to 6.44%, down from 6.50%. Points also decreased to 0.54 from 0.60 for loans with a 20% down payment. Despite this decline, the demand to refinance decreased by 0.1% from the previous week, although it was 85% higher than the same week last year. Most existing borrowers hold mortgages with rates below 6%, making refinancing less attractive unless substantial savings can be achieved.

Applications for home purchases rose by 1% for the week but were still 9% lower compared to the same week last year. Joel Kan, MBA’s vice president and deputy chief economist, noted that prospective homebuyers are showing patience, waiting for further rate decreases and a rise in for-sale inventory.

Mortgage rates have been stable at the start of this week, with no significant economic data expected to impact them until the monthly employment report is released next week.