The benchmark U.S. 10-year Treasury yield rose modestly on
Monday, but remained off last week's four-month high after data
suggested that manufacturing could be regaining its footing,
ahead of Fed Chair Jerome Powell's testimony on Tuesday.
Yields hit session lows following the data's release before gradually moving higher. New orders for U.S.-manufactured goods fell in January as civilian aircraft bookings tumbled, but increases in machinery and other products hinted that manufacturing could be stabilizing.
Powell is set to give his semiannual monetary policy testimony before the Senate Banking, Housing and Urban Affairs Committee at 10 a.m. EST (1500 GMT) on Tuesday. Investors will look for insights as to how aggressive the U.S. central bank will be in raising interest rates.
Yields have steadily climbed in recent weeks after the jobs report for January and other data pointed to a labor market that remains tight, which increased expectations the Fed will have to continue to hike rates. Fed officials have mostly echoed comments that the central bank may be nearing the end of its rate hike cycle, but will keep rates at elevated levels for an extended period, and could continue to hike if the data supports it. The yield on 10-year Treasury notes was up 2 basis points to 3.983%. The 10-year yield reached 4.091% last week, the highest since Nov. 10, while the two-year yield touched 4.944%, its peak in over 15 years, before pulling back on Friday.
"The higher yields that we have seen through the month of
February has kind of run its course at this point," said Jim
Barnes, director of fixed income at Bryn Mawr Trust in Berwyn,
Pennsylvania.
"Powell's comments will be important. It depends on how much
conviction he has because he could still just acknowledge two or
three rate hikes which isn't really too far off what they were
anticipating anyway at the start of the year."
This week the Treasury will auction $40 billion in
three-year notes on Tuesday, $32 billion in 10-year notes on
Wednesday and $18 billion in 30-year bonds on Thursday.
The Federal Reserve Bank of New York
said global supply chains have "returned to normal" as pressures have dropped to the lowest since prior to the COVID-19 pandemic, which could indicate inflation continues to ebb.
The February jobs report is expected to show nonfarm payrolls increased by 200,000, after the much stronger-than-expected 517,000 jobs reported in January. Expectations for a 50 basis point rate hike by the Fed have been slowly inching higher, with traders pricing in a 30.6% chance at the March meeting, per CME's FedWatch Tool, up from 24% one week ago. The yield on the 30-year Treasury bond was up 2.6 basis points at 3.913%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, was at a negative 91.1 basis points.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 3.1 basis points at 4.892%.
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.792%, after closing at 2.796% on Friday, its highest since
late August.
The 10-year TIPS breakeven rate was last at
2.508%, indicating the market sees inflation averaging 2.5% a
year for the next decade.
(Reporting by Chuck Mikolajczak; Editing by Will Dunham and
Richard Chang)
