U.S. Treasury yields rose on Thursday, as the resumption of gas flows to Europe through a crucial pipeline reduced concerns about a sharp economic slowdown on the continent.
- The yield on the 2-year Treasury TMUBMUSD02Y, 3.263% rose 1 basis point to 3.243%.
- The yield on the 10-year Treasury TMUBMUSD10Y, 3.055% advanced 1 basis point to 3.048%.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.181% climbed 1 basis points to 3.175%.
The 10-year to 2-year spread of minus 19.2 basis points means the yield remains near its most inverted since the great financial crisis, potentially signaling a looming economic downturn.
What’s driving markets
Worries about a savage economic slowdown in Germany have receded after Russia resumed natural gas flows through the Nord Stream 1 pipeline on Thursday.
The International Monetary Fund had calculated that if the energy conduit was shut for a prolonged period it would hit industry and households, pushing the world’s fourth biggest economy into a sharp recession in 2023.
U.S. Treasury yields rose in line with German peers, with 10-year bunds TMBMKDE-10Y, 1.292% up 1.6 basis points to 1.275% as the market also waited to see by how much the European Central Bank would raise interest rates on Thursday. Such a move would mark the first rate hike in more than a decade.
Expectations for Federal Reserve policy were barely changed. Markets are pricing in a 64.4% probability that the Fed will raise interest rates by another 75 basis points to a range of 2.25% to 2.5% after its meeting on July 27th. The central bank is expected to take its borrowing costs to 3.6% by February 2023, according to Fed Funds futures.
U.S. economic data due on Thursday include jobless claims at 8:30 a.m. and leading indicators at 10 a.m., both Eastern.
The yield spread with Germany, a closely watched gauge of stress for Rome’s debt, jumped to 228 basis points, as doubts grew that Italy could fulfill conditions necessary to receive its €200 billion ($204 billion) share of the EU’s coronavirus recovery fund.