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U.S. government bonds rally as traders cut stakes on tighter Fed policy

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U.S. government bonds met Tuesday, pushing the 10-year yield to its lowest level in four months, as investors unraveled the stakes for tighter monetary policy and reacted to a survey poll on the services sector.

The benchmark 10-year note yield fell 0.06 percentage points to 1.36 percent, its lowest level since late February when fears of a rapid recovery in inflation began to resurface. through the financial markets.

The 10-year yield, which moves inversely to its price, grew as much as 1.77 percent earlier this year when investors began to anticipate a more aggressive response from the Federal Reserve to tame the growth of inflation.

Tuesday’s movements added fuel to a rally in U.S. treasuries dated as early as Friday, when government data show U.S. assumptions had accelerated, but not at a pace sufficient to induce a policy change from the central bank. The Fed’s ultra-tight monetary policies, including historically low interest rates and a massive bond purchase program, have been key elements in keeping borrowing costs low and raising the prices of other assets.

New data released Tuesday by the Institute for Food Management, which tracks activity in the services sector, has intensified the rush to government debt, which tends to perform well during downtime. higher uncertainty. The figures show business and employment conditions in the services industry weakened in June from the previous month, with the ISM citing comments that it was difficult to find qualified candidates to fill open positions.

“The ISM reading has added more motivation to widen Treasury movement yields lower,” said Ian Lyngen, interest rate strategist at BMO Capital Markets. “A big part of what we’re seeing is a capitulation to the thesis of higher taxes.”

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Market measures for future inflation forecast in the country also fell on Tuesday, with the so-called 10-year breakout rate declining to 2.32 percent. Yields on other Treasuries in the long run, including bonds 20 and 30 have also fallen as traders shifted into debt. The decline has pushed the yield gap between policy-sensitive two-year notes and 10-year notes to the lowest level since February.

The moves have resurfaced to the $ 50 billion market in the United States, where shares of large industrial goods companies, major oil companies and large banks have fallen in value. All three sectors have been spurred this year by hopes of faster growth, with large banks rising even as investors bet that higher rates will help boost earnings. The S&P 500 benchmark index fell 0.7 percent.

“As the equity market crashed, the Treasury market took an offer,” said Andrew Brenner, head of international fixed income at National Alliance Securities.

Investors turned to large technology groups such as Apple and Oracle – companies that prospered during the pandemic and are seen as less sensitive to economic fluctuations. The move helped keep losses on the Nasdaq Composite at 0.1 percent sweeter.


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