U.S. Treasury yields fall on Wednesday after dovish signal from New York Fed chief John Williams

U.S. Treasury yields pulled back from multi-year highs in Asian trading on Wednesday, after speeches by Federal Reserve officials lowered market expectations of further interest-rate hikes, as the Wall Street Journal reports in an article by Emese Bartha.

New York Fed President John Williams suggested that the central bank does not need to rush to continue raising interest rates, after the first hike in three years in September — 25 basis points, taking the rate range to 3.75%–4.00%. Markets interpreted his tone as a dovish signal.

There were other voices within the Fed as well. Fed Governor Michael Barr and St. Louis Fed President Alberto Musalem held a hawkish, pro-hike stance, while Chicago Fed President Austan Goolsbee remained neutral, awaiting clearer evidence that inflation is falling.

The 2-year Treasury yield fell 0.6 basis points to 4.881%; the 10-year fell 2.5 basis points to 5.229%; and the 30-year fell 3.4 basis points to 5.560%, after touching a 24-year record of 5.621% on Tuesday.

Money markets now price in only a 45% probability of a 25-point rate hike in October, down from 70% on Monday; over a 12-month horizon, the expectation for cumulative cuts has softened to 93 basis points, from 100 basis points on Tuesday.

“Markets interpreted the communication overall as a dovish signal”, Danske Bank analyst Antti Ilvonen told the WSJ. Only yesterday, 10-year and 30-year yields had touched multi-year highs above 5%, raising borrowing costs across the U.S. economy.