US Treasury yields rose on Monday, with interest rate sensitive two-year yields reaching a one-month high, after Federal Reserve Chairman Jerome Powell continued to push back against the prospect of near-term rate cuts.
Powell said in an interview with “60 minutes” that the Fed can be “prudent” in deciding when to cut its benchmark interest rate, with a strong economy allowing central bankers time to build confidence that inflation will continue falling.
That comment came after Powell said at the conclusion of the Fed’s two-day meeting on Wednesday that a rate cut in March, as the market had been pricing for, was unlikely. Much stronger than expected jobs data on Friday also led investors to reevaluate timing for the first cut.
Benchmark 10-year notes gained 13 basis points on the day to 4.162 percent . Two-year yields were last up 10 basis points on the day at 4.470 percent , after earlier reaching 4.483 percent , the highest since Jan. 5.
The inversion in the yield curve between two-year and 10-year notes narrowed 4 basis points to minus 31 basis points, after reaching minus 42 basis points on Friday, which was the most inverted since Jan. 5.
Yields are moving higher on “the combination of Powell’s hawkish comments, the better than expected number we saw on jobs and this supply issue – supply just keeps coming,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG, adding that the market last week was also “overbought.”
The US Treasury Department will sell $121 billion in coupon-bearing supply this week. This will include $54 billion in three-year notes on Tuesday, $42 billion in 10-year notes on Wednesday and $25 billion in 30-year bonds on Thursday.
Traders are pricing in a 15 percent chance of a March rate cut, down from 46 percent a week ago, and see a 62 percent probability of a rate cut by May, according to the CME Group’s FedWatch Tool.
Investors will focus closely on economic data for further clues on the Fed’s thinking.
Data on Monday showed that the US services sector growth picked up in January as new orders increased and employment rebounded, but suppliers appeared to fall behind, resulting in a measure of input prices rising to an 11-month high.
Chicago Fed President Austan Goolsbee said on Monday that the US central bank does not need to be overly concerned by recent higher-than-expected economic growth and employment figures as long as inflation continues to trend back toward the central bank’s 2 percent target rate.
