Treasury yields end lower as government debt buyers return

Treasury bonds recouped two days of losses on Tuesday as buyers returned to the U.S. government debt market and Federal Reserve officials reiterated the need to keep interest rates unchanged.

What happened

  • The 2-year Treasury yield BX:TMUBMUSD02Y fell 6.4 basis points to 4.406% from 4.470% on Monday.

  • The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 7.2 basis points to 4.091% from 4.163% on Monday.

  • The 30-year Treasury yield BX:TMUBMUSD30Y fell 4.9 basis points to 4.296% from 4.345% on Monday.

  • Ten- and 30-year Treasury yields closed Monday with the largest two-day increases since June 2022 and March 2020, respectively. The 2-year rate posted its largest two-day increase since May of last year.

What drove the markets

Regional Fed officials on Tuesday reinforced the central bank’s need to push back the timing of its first rate cut this year.

Cleveland Fed President Loretta Mester said it would be a mistake to cut rates too early or too quickly without sufficient evidence that inflation is sustainably returning to 2%. Meanwhile, Neel Kashkari of the Minneapolis Fed said “we’re not there yet” on inflation.

The $54 billion auction of 3-year Treasury notes was met with decent demand, which helped keep Tuesday’s buying momentum intact. Traders now turn their attention to Wednesday’s $42 billion sale of 10-year Treasury bonds.

Meanwhile, Fed Futures traders have forecast an 80.5% chance that the central bank will leave its benchmark interest rates unchanged between 5.25% and 5.5%, according to the CME’s FedWatch Tool. after the meeting on 20 March.

The probability of a rate cut of at least 25 basis points by the next meeting in May is estimated at 66.1%. The central bank is still expected to lower its federal funds rate target to at least 4% to 4.25% by December.

In separate developments, the Securities and Exchange Commission moved to tighten Treasury market oversight by imposing new rules that will require many private funds to register as so-called dealers.

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