US Treasury Yields Extend Rebound as Services PMI Beats Expectations

US Treasury yields extended their rebound after the Treasury Department announced a bond buyback program. Meanwhile, the latest economic data showed that despite a slowdown in manufacturing activity, the services sector outperformed expectations, with overall business activity remaining solid, providing additional support for the upward move in yields.

**Services Data Offsets Manufacturing Weakness**

S&P Global data showed the flash services Purchasing Managers' Index (PMI) came in stronger than expected, indicating that the key pillar of the US economy—services—is still expanding. This partially offset concerns over continued manufacturing slowdown, reinforcing the view that economic resilience remains intact. Solid services activity lowered the market's urgency for aggressive near-term Fed rate cuts, thereby pushing Treasury yields higher.

**Bond Market Sentiment Driven by Multiple Factors**

Sentiment in the Treasury market has been volatile recently. Earlier, signs of weakening growth momentum, such as a sharp drop in the University of Michigan consumer sentiment index, had fueled risk-off sentiment and led to a notable decline in yields. However, with the release of the services data, market focus has shifted back to the economy's structural resilience. Additionally, the Treasury's announced bond buyback operations have impacted the market from the supply side, jointly driving the rebound in yields.

**Market Repricing Policy Path**

Stronger-than-expected economic data has led investors to recalibrate their bets on the Fed's monetary policy path. Market views suggest that a solid services sector could make the Fed more patient in adjusting rates. As of the latest data, rate futures markets have trimmed their pricing for cumulative rate cuts this year compared with earlier, reflecting cooling expectations for easing. This shift is directly reflected in Treasury yields, with the 10-year yield recently approaching its yearly high.