Treasury yields fell in the US as the war between Israel and Hamas rages on, with several thousand dead and wounded.
Treasury yields fell in the US on Tuesday as investors consider the economic and geopolitical effects of the ongoing war between Israel and Palestinian militant movement Hamas. Early Tuesday morning, the 10-year Treasury fell over 12 basis points to 4.6571%. The 2-year Treasury yield also fell, hitting 4.9843% after losing nine basis points.
Economists and investors are currently monitoring the Israel-Hamas conflict and considering the possibility that it would cause a ripple effect in the world’s financial markets. According to a CBS News report, the death toll on both sides has crossed 1,500. Hamas launched air attacks into Israel early Saturday morning at the end of the Jewish festival of Sukkot. Interestingly, it was also a day after the 50th anniversary of the Yom Kippur War of 1973. Also known as the Ramadan War, the war was an armed conflict between Israel and several Arab states, which ended with thousands dead, wounded, and captured.
Israeli Prime Minister Benjamin Netanyahu has publicly stated that Israel will take revenge and will “destroy Hamas’s capabilities”. On Tuesday, the Israeli military said it now has control of the Gaza-Israel border. Israel is still launching airstrikes into Gaza and will block access to electricity, food, and water for the millions of residents there. Authorities in both regions have announced 900 deaths and 2,600 people injured in Israel, with 687 dead and 3,700 injured in Gaza.
US Treasury Yields and Interest Rates
The Federal Reserve may consider the increase in Treasury yields in deciding on interest rates. According to Fed Vice Chair Philip Jefferson, the US’ apex bank must tread cautiously as Treasury yields continue to fall. Last Wednesday, Treasury yields fell in reaction to data that indicate a struggling labor market. The 10-year Treasury note fell 7 basis points, while the 30-year Treasury bond also lost 7 basis points. The data released also resulted in the 2-year Treasury note losing 9 basis points. According to the Dallas Fed President, the performance may indicate that there is no need for the Fed to hike interest rates.
In July, the Fed’s Federal Open Market Committee (FOMC) decided to raise interest rates by 25 basis points to the 5.25%-5.50% range. The range’s midpoint is the highest seen in the US since 2001. At the time, Fed Chairman Jerome Powell noted in a news conference that more rate hikes were necessary. He also added that the Fed still maintains its 2% target for the country’s inflation. However, Powell said the decision would depend on data available at the next meeting. Fortunately, the FOMC decided to leave rates unchanged following the September meeting. Since March last year, the Fed has been increasing rates to tackle rising inflation.
The International Monetary Fund has raised its US growth forecast for the year. The IMF increased the forecast by 0.3 percentage points to 2.1%, stating strong business investments and consumer resilience. On the other hand, billionaire investor Ray Dalio recently predicted a debt crisis. According to Dalio, economic growth could fall to zero.