US Treasury yields fell on Thursday after Federal Reserve Governor Christopher Waller indicated a preference for keeping interest rates steady if inflation pressures continue to cool. His remarks, made at a Reuters NEXT Newsmaker event, led to a decrease in the likelihood of a September rate hike, with markets pricing in a 50.4% chance, down from 63.2% the previous day.
The yield on the benchmark US 10-year Treasury note dropped 3.8 basis points to 4.756%, marking its biggest fall since August 25. The 10-year yield had previously touched 4.818% on Wednesday, its highest since November 1, 2023. Meanwhile, the 30-year bond yield declined 2.8 basis points to 5.239%, and the two-year US Treasury yield, sensitive to rate expectations, fell 5.6 basis points to 4.33%.
Economic data also contributed to the market sentiment, with weekly initial jobless claims rising slightly to 206,000, just above the 205,000 estimate. This data, along with other recent labor market reports, pointed to a slowly but steadily improving job market. However, the Institute for Supply Management's non-manufacturing Purchasing Managers' Index advanced to 55.4 last month, surpassing the 54.2 estimate, which pared some of the earlier yield declines, indicating an expanding services sector. Traders are now awaiting Friday's monthly payrolls report, which will further influence monetary policy expectations, with economists forecasting a 55,000 increase in payrolls and the unemployment rate holding at 4.1%.
