US yields remain lower after Fed cuts interest rates
Fed cuts rates by 25 basis points, cites labor market easing
US rate futures price in another 25-bp cut next month
Analyst questions need to cut if risks are in balance
Recasts, adds analyst comment, updates prices
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 7 (Reuters) -U.S. Treasury yields stayed lower across the board, but trimmed losses a little biton Thursday after the Federal Reserve cut interest rates by 25 basis points, as widely expected, amid a cooling labor market, while noting that economic growth remained solid.
"Economic activity has continued to expand at a solid pace," the central bank's rate-setting Federal Open Market Committee said at the end of a two-day policy meeting. The FOMC lowered the benchmark overnight interest rate to the 4.50%-4.75% range. The decision was unanimous.
The benchmark 10-year yield reduced losses after the Fed decision. It was last down 7.1 bps at 4.355% US10YT=RR.
The U.S. two-year yield US2YT=RR, which reflects interest rate expectations, was down 4.6 bps at 4.222%, not that far from Wednesday's three-month high of 4.312%.
"My main question is if inflation is still elevated and the committee risks are roughly in balance, what is the point of continuing to cut?" wrote Byron Anderson, head of fixed income at Laffer Tengler Investments, in emailed comments.
"The Fed gained control of the recession narrative with its supersized cut at the last meeting. If you believe the economy is on good footing, the risks to inflation are increasing with every rate cut they do."
The U.S. yield curve flattened on Thursday, as yields came off their highs. The gap between two-year and 10-year yields was at 13.5 bps US2US10=TWEB, falling after hitting on Wednesday its steepest level since late September of 19.5 bps.
Yield curves tend to steepen when the Fed is in the midst of an easing cycle because yields on the front end are anchored with the rate cuts. Those on the long end, however, tend to rise with some expectation that the rate reductions could eventually accelerate inflation down the road.
Following the Fed decision, the fed funds futures market has priced another 25-bp rate cut next month, with a 72% probability, according to LSEG calculations. Rate futures are also implying another 67 bps in reductions in 2025.
Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci
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