Treasuries: 10-year yields hover near 2-week lows after jobs openings data

Applied Energetics

30/01/2024 20:44

(Updates market activity, adds analyst quote.)
    By David Randall
       NEW YORK, Jan 30 (Reuters) - Benchmark U.S. 10-year
Treasury yields hovered near two week lows on Tuesday as
investors weighed unexpected strength in the job market with
Monday's announcement by the Treasury Department that it will
not need to borrow as much as it forecasted in October. 
    Markets are highly focused on the labor market because it
will likely signal when the Federal Reserve will begin cutting
benchmark interest rates this year. The Fed concludes its
two-day policy meeting on Wednesday. 
    While markets have priced in a near-certainty that the Fed
will keep benchmark rates at their current level, Fed Chair
Jerome Powell's press conference will likely give clues as to
the number of interest rate cuts the central bank expects to see
this year. 
    Markets are now expecting the first 25 basis point cut in
May, compared with expectations of a cut at the March meeting at
the start of the year. Overall, investors expect 130 basis
points in cut by the end of the year, down from expectations of
more than 160 basis points in cuts at the end of 2023. 
    "It's the quiet before the storm," said Frank Rybinski, head
of macro strategy at Aegon Asset Management. "For a March cut to
happen you'd have to have some pretty clear communication from
the Fed laying the groundwork tomorrow, but when you look at the
economic data and where the labor market is, it's hard to have a
high degree of confidence that they will see the need to cut." 
    U.S. job openings unexpectedly rose in December and data for
the prior month was revised higher, the Labor Department said,
suggesting that demand in the labor market remains strong.
Treasury yields sold off following the data release.
    In late afternoon trading, the yield on 10-year Treasury
notes  US10YT=RR  was down 3.2 basis points to 4.059%. The yield
on the 30-year Treasury bond  US30YT=RR  was down 5.8 basis
points to 4.277%. 
    The dip in yields comes on the heels of Monday's
announcement by the Treasury Department that it will not need to
borrow as much as it had forecasted in October, alleviating some
concern among investors about oversupply. 
    Yields closed below their 200-day moving average on Monday,
which historically has signaled another 10 to 12 basis point
drop over the next few trading sessions, noted Ian Lyngen, head
of U.S. rates strategy at BMO Capital Markets. 
    "It's easy to envision a breakout that brings 10-year yields
comfortably below 4.0%," he said. 
    Overall, the Case-Shiller Home Price Index rose 5.40% on the
year that ended in November and gained 0.15% on a seasonally
adjusted monthly basis, slightly below expectations of a 5.80%
annual gain and a 0.5% monthly advance. 
    "The Fed wants to limit increases of house prices to keep
core inflation trending lower," said Bill Adams, chief economist
for Comerica Bank. 
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes  US2US10=RR , seen as an indicator of economic
expectations, was at -25.7 basis points. 
    The two-year  US2YT=RR  U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 1.4
basis points at 4.308%. 
        
  

 (Reporting by David Randall; Editing by Emelia Sithole-Matarise
and Marguerita Choy)
 ((David.Randall@thomsonreuters.com; 646-223-6607; Reuters
Messaging: david.randall.thomsonreuters.com@reuters.net))