Treasury yields extended their declines into Tuesday’s afternoon session as traders weighed fresh comments from another Federal Reserve official who warned against cutting policy interest rates too hastily.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
dropped 9.1 basis points to 4.379% from 4.470% on Monday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
fell 8 basis points to 4.083% from 4.163% on Monday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
retreated 5.7 basis points to 4.288% from 4.345% on Monday. - Ten- and 3-year Treasury yields had ended Monday with their biggest two-day advances since June 2022 and March 2020, respectively. The 2-year rate had its biggest two-day advance since May of last year.
What’s driving markets
On Tuesday, Cleveland Fed President Loretta Mester said it would be a mistake to cut rates too soon or too quickly without sufficient evidence that inflation is moving sustainably back to 2%. Her remarks reinforced the central bank’s need to push back on the timing of the first rate cut this year.
Meanwhile, Treasury’s $54 billion of 3-year notes was met with decent demand and helped to keep Tuesday’s buying momentum intact.
For now, traders are pricing in an 80.5% probability that the Fed will leave its benchmark interest rates unchanged at between 5.25%-5.5% at its meeting on March 20, according to the CME FedWatch Tool.
The probability of at least a 25-basis-point rate cut by the subsequent meeting in May is seen at 67.8%. The central bank is still mostly expected to take its fed-funds rate target down to at least between 4%-4.25% by December.