10-year Treasury yield breaks back below 2% following Fed rate cut

The yield on the benchmark 10-year Treasury note fell below 2% on Thursday, a day after Federal Reserve cut interest rates for the first time since 2008.

In approving the cut, the FOMC pointed to “implications of global developments for the economic outlook as well as muted inflation pressures.” Fed official also characterized economic growth as “moderate” and the labor market “strong,” but eased policy regardless.

At around 9:40 a.m. ET, the yield on the benchmark 10-year Treasury note hit 1.99%, while the yield on the 30-year Treasury bond was also lower at around 2.502%. The 2-year Treasury note yield, more representative of changes to Fed policy, fell to 1.852%; the rate peaked around 1.96% on Wednesday. Yields move inversely to prices.

Markets are also on edge after Fed Chairman Jerome Powell  told reporters on Wednesday that the central bank’s decision in July did not guarantee additional cuts before the end of 2019.

“We’re thinking of it essentially as a midcycle adjustment to policy,” Powell said following the release of the Fed’s decision. “What I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that.”

“When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that,” he added.

Powell’s “press conference was not as smooth as I know they can be,” said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management. “He clarified that this wasn’t the beginning of a long easing cycle and that threw some reality into the market.”

Going forward, “I think they’re also going to be cognizant of global trade tensions, which was sort of the ignition of market’s expectations of rate cuts,” Pollack added. ”[Trade policy’s] certainly out of their hands, but the think the Fed allowed the market to push them into these easing expectations.”

Still, the Fed’s interest rate cut was the first in more than a decade, with central bank citing “global developments” along with “muted inflation” as reasons for easing. The federal funds rate target range is now 2%–2.25%.

The number of Americans filing applications for unemployment benefits increased last week, but the trend in claims remained consistent with tightening labor market conditions.

Claims for state unemployment benefits rose 8,000 to a seasonally adjusted 215,000 during the week ended July 27, the Labor Department said on Thursday.

The closely-watched ISM manufacturing index for July, manufacturing Purchasing Managers’ Index (PMI) data for July, construction spending figures for June and the latest reading of light vehicle sales will follow later in the session.

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