10-Year Treasury Yield Back Below 2%

 

Tariffs on an additional $4 billion dollars worth of EU goods are being considered as a result of the WTO aircraft investigation. The announcement was delivered by the Office of the US Trade Representative and stands to increase the planned tariffs on the EU to $21 billion per year in goods. Ultimately, the tariffs would be driven by the outcome of a World Trade Organization case — a disagreement over unfair subsidies for aircraft manufacturers  that dates back more than 10 years. The EU has already publicly responded with its readiness to “promptly” retaliate against the US. The benchmark 10-year German bund yield fell to a new record low of -0.367% during today’s trading session.

 

 

The yield on the 10-year Treasury dipped back below 2.00% , down 5 bps on the day to finish near 1.975% as the ongoing trade concerns continue to drive rates lower. Major US stock indices managed to escape with modest gains, led by the S&P 500, which climbed 0.29% to a new high. In energy markets, yesterday’s OPEC-driven rally in crude oil swiftly reversed course, with WTI crude tumbling 4.8% to $56.25/barrel. Despite major oil-producing nations committing to extend production cuts through next March, investors remain skeptical that it will be enough to support crude prices amid softening global demand.

 

 

Cleveland Fed President Loretta Mester questioned the effectiveness of a rate cut by the Fed in the short term, despite futures markets continuing to price a 100% probability of a cut at the July 31^st meeting. “It is not clear how effective this policy would be,” Mester explained. “Cutting rates at this juncture could reinforce negative sentiment about a deterioration in the outlook even if this is not the baseline view, and could encourage financial imbalances given the current level of interest rates, which would be counterproductive.” She went on to provide the traditional Fed line to “gather more information before considering a change in our monetary-policy stance.” The Labor Department will provide the latest update on the health of the U.S. labor market on Friday when it releases the June payroll report.  Consensus forecasts point call for payrolls to climb 164k in June after an abysmal +75k rise the prior month. The unemployment rate is expected to remain steady at a 50-year low of 3.6%.