"At the margin it is hawkish, especially the part where they might increase the pace of hikes," said Jeffrey Hibbeler, Senior Portfolio Manager for Fixed Income at Exencial Wealth Advisors in Charlotte, North Carolina.
"Once they downshifted to 25 (basis points), it seemed to me it would take some pretty big changes in the data to shift back up to 50, probably be easier to just prolong 25 basis point hikes, allow the lags of monetary policy to continue and see if policy starts to work the way they want it to. To me, that was the biggest surprise of it," Hibbeler added.
While shorter-dated yields rose, the reverse was true of longer-dated Treasuries, and the yield on 10-year Treasury notes was down 1.5 basis points at 3.968%. That led to a closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes inverting to a negative 105.3 basis points, its deepest since August 1981. Such an inversion is seen as a reliable recession indicator.
The yield on the 30-year Treasury bond was down 3.7 basis points at 3.875%.
An auction of $40 billion in three-year notes was seen as solid, according to market participants, with demand for the debt at 2.73 times the notes on sale.
More supply will come to the market this week when Treasury
auctions $32 billion in 10-year notes on Wednesday and $18
billion in 30-year bonds on Thursday.
Yields have steadily climbed in recent weeks after the
January jobs report and other economic data pointed to a labor
market that remains tight, which increased expectations the Fed
will have to maintain its path of rate hikes as inflation
remains stubbornly high.
The February jobs report due on Friday is expected to show
nonfarm payrolls increased by 203,000, according to economists
polled by Reuters, after the much stronger-than-expected 517,000
jobs reported in January.
Fed funds futures were now pricing in more than a 60% chance
for a 50 basis-point hike at the central bank's March 22 policy
announcement. The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.617%, after closing at 2.764% on Monday.
The 10-year TIPS breakeven rate was last at
2.388%, indicating the market sees inflation averaging 2.4% a
year for the next decade.
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(Reporting by Chuck Mikolajczak in New York
Additional reporting by Sinéad Carew in New York
Editing by Will Dunham and Matthew Lewis)
