Treasury Market Awaits Jackson Hole to Get Out of Its Summer Doldrums

The Grand Tetons at sunrise at the Jackson Hole economic symposium in Moran, Wyo. (David Paul Morris/Bloomberg)

The U.S. government bond market has been quiet this month as investors wait to gauge the vibes at Jackson Hole, a gathering of the most powerful voices in policymaking.

The tone at the annual economic symposium on Friday can reawaken the market and set its trajectory ahead.

The yield on the 10-year Treasury, a benchmark for long-term interest rates, has settled between 4.2% to 4.34% this month. The two-year Treasury yield, sensitive to short-term interest rates set by the Federal Reserve, has been between 3.68% to 3.77%. Both have been trading in a narrow range after beginning August with a decline.

The calm in the market has also been evidenced by the MOVE index, a gauge of implied volatility that tracks expected swings in Treasuries. It fell to its lowest level in over 3½ years on Friday. All of this is normal to some extent. Traders are in the final weeks of summer, a time typically characterized by listless trading, low volumes, and limited conviction.

Chair Jerome Powell’s speech at Jackson Hole is set against this backdrop, a hefty macro event that will be watched for indications of the Fed’s willingness to cut rates quickly and break the silence in the Treasury market. It will be the first time the chair will offer his views on the U.S. economy since the weak July employment figures and downward revisions to May and June’s figures that fired up expectations of a rate cut earlier this month.

“Recent Fed commentary has not offered markets much of a push, with no definitive indication that officials have rethought the June SEP’s two cut median and some making a point to lean against the need for larger moves at this point,” George Cole, an economist at Goldman Sachs, wrote on Friday.

Some of the past seven Powell speeches at Jackson hole have seen notable moves in the Treasury market. The 2-year yield moved lower by 0.096 percentage points or 10 basis points, last year on Aug. 23, 2024, when Powell spoke at the symposium. To put it in context, yields saw such a big dip only five times this year; in January and March and two instances in April when the tariff situation turned tense, and finally when the dismal labor market report came out on Aug. 1.

After Powell’s speech in Aug. 25, 2023, the 2-year yield gained 0.04 percentage points, bigger than its average daily percentage change in that month. The other notable year was 2019 when the 2-year yield fell 0.08 percentage points on Powell speech day.

The 10-year yield saw a 0.056 decline last year on Powell’s speech day. Other years the change wasn’t too noticeable, except in 2019 and 2020 when the yields fell by 0.09 percentage points and gained 0.06 percentage points, respectively. A move of this magnitude in one day will be notable because the 10-year has been in a holding pattern lately.

The iShares Core U.S. Aggregate Bond ETF, which has about half of its assets devoted to Treasuries and a slice to corporate bonds and mortgage-based securities, is up 4.6% this year. If it matches last year Powell Speech Day performance, it can see a gain of 0.5%. In the prior two years it fell about 0.1%

The limited flow of tradable information this week combined with the fact that this is Powell’s last chance to make the case for the Fed independence makes Jackson Hole more interesting for rate watchers this time around.

“We like Treasuries for the margin of safety they provide,” wrote David Rosenberg of Rosenberg Research on Wednesday. “But that will depend on Powell maintaining his resolve at a time when the Fed’s independence has come under attack from the political class.”

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.