TREASURIES-US yields steady as traders wait for data, supply

BY Reuters | ECONOMIC | 04/22/24 03:33 PM EDT

(Updated to 1500 EDT)

By Karen Brettell

April 22 (Reuters) - U.S. Treasury yields were little changed on the day on Monday ahead of Treasury sales of $183 billion in new supply and as investors waited for data to provide new clues on when the Federal Reserve is likely to begin cutting interest rates.

Yields have risen to five-month highs in since hotter-than-expected consumer price data for March released earlier this month dashed hopes that elevated prices in January and February were an anomaly, and raised the prospect that inflation may remain sticky for some time.

Policymakers including Chair Jerome Powell last week backed away from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer.

With a strong labor market also buoying the economy, that leaves the U.S. central bank and markets waiting on data for the next clues on direction.

"Markets are going to be trying to carve out some new ranges ahead of GDP and PCE data later in the week but really the only thing to focus on ahead of that is supply," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.

This week's main economic focuses will be gross domestic product (GDP) data on Thursday and Personal Consumption Expenditures (PCE) on Friday. The PCE data is expected to show that core prices rose by 0.3% in March for an annual gain of 2.7%.

Demand for Treasuries will also be tested when the Treasury sells $69 billion in two-year notes on Tuesday, $70 billion in five-year notes on Wednesday and $44 billion in seven-year notes on Thursday.

The recent run-up in yields, however, could leave the market vulnerable to a large snapback if economic data disappoints.

"Markets are a little bit over-enthusiastic about economic data recently," said Goldberg. "The risk for markets though is that as we've carved out these new ranges, any sort of weakness in economic data could actually reverse the recent moves quite violently."

Benchmark 10-year note yields were last at 4.621%. They are holding just below the 4.696% level reached on April 16, which if broken would be the highest since early November. Two-year yields were little changed on the day at 4.971%. They reached 5.012% on April 11, the highest since mid-November.

The inversion in the yield curve between two-year and 10-year notes was steady at minus 35 basis points.

Fed funds futures traders are pricing in only 40 basis points of easing this year and see the first cut as most likely in September or November. They had previously priced in three 25 basis point rate cuts this year, beginning in June.

Fed officials are now in a blackout period before the April 30/May 1 meeting.

Concerns about rising geopolitical tensions in the Middle East remain a wild card that could boost demand for Treasuries and drag yields lower.

(Reporting By Karen Brettell; Editing by Andrea Ricci and Cynthia Osterman)

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