10-Year T-Note Futures Market News and Commentary
Sep 10-year T-notes (ZNU19) on Friday closed down -3.5 ticks and the 10-year T-note yield rose +1.9 bp to 2.043%. T-note prices fell back Friday as speculation diminished that the FOMC will cut rates by 50 bp at its upcoming meeting on July 30-31. The New York Fed late Thursday walked back Thursday's comment from New York Fed President Williams that "it pays to act quickly to lower rates at the first sign of economic distress" by saying that the comment was academic talk based on 20 years of research and was not about potential Fed policy actions. T-notes were also pressured after St. Louis Fed President Bullard (voter) said Friday that "a 25 bp rate cut by the Fed would be appropriate as the current situation doesn't warrant a larger rate cut." Losses in T-notes were limited Friday on carry-over strength from a rally in German bunds. The 10-year German bund yield on Friday fell to a 1-week low of -0.330% on ideas that slack price pressures will prompt the ECB to revive QE after Friday's German June PPI eased to a 2-1/2 year low of +1.2% y/y, weaker than expectations of +1.5% y/y. A jump in inflation expectations was negative for T-notes Friday as the 10-year T-note breakeven inflation expectations rate rose to a 1-3/4 month high of 1.813% and finished the day +2.6 bp at 1.790%. The 10-year T-note breakeven inflation expectations rate remains well above the 1-month low of 1.638% (July 3) and the mid-June 2-3/4 year low of 1.612%. Big Picture T-Note Market Factors: Bullish factors for T-note prices include (1) market expectations of a 100% chance of a 25 bp rate cut at the July 30-31 FOMC meeting, (2) the FOMC's cut in its 2019 core PCE estimate to 1.8% from March's 2.0% and cut in its 2020 median Fed funds rate forecast by -50 bp to 2.1% from 2.6% projected in March, (3) weaker U.S. and global economic growth due to trade tensions, and (4) safe-haven demand due to trade tensions, Brexit risks, and geopolitical risks from Iran, North Korea, and Venezuela. Bearish factors include (1) the Fed's balance sheet draw-down program that will last through September, (2) the record high in stock prices, and (3) some continued simulative effects from the massive 2018 U.S. tax cut.