Manufacturing Rebounds, Spurring Upward Trend in Treasury Yields and Dampening Rate Cut Expectations

Investors Analyzing U.S. Treasury Yields Amid Economic Data Review

On Tuesday, the 10-year Treasury note yield saw an increase, continuing its upward trend from the previous day. The benchmark rate rose by almost 7 basis points to 4.397%, reaching its highest level in two weeks and approaching the highest levels seen this year. In contrast, the 2-year Treasury note yield increased by nearly 1 basis point to 4.726%. Yields and prices move in opposite directions, with one basis point equaling 0.01%.

The movements were spurred by news that manufacturing in the U.S. expanded for the first time in 17 months, based on data released by the Institute for Supply Management on Monday. The ISM manufacturing index climbed to 50.3, up from 47.8 in February and surpassing the Dow Jones consensus estimate of 48.1. Any reading above 50 on the index indicates growth, as it measures the percentage of companies reporting expansion versus contraction.

As a result of this positive development, market odds for a June rate cut have decreased to around 58.8%, down from approximately 70% a week earlier. Investors are being cautious about future rate cuts, particularly given the unexpected resurgence in U.S manufacturing growth and concerns about inflationary pressures building up over time if interest rates remain low for too long.

ING added to these concerns when they stated in a research note that this manufacturing growth has reduced the likelihood of significant Fed rate cuts.

Last month, the Federal Reserve kept interest rates unchanged for

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