‘Buckle up.’ Treasury yields extend pullback from highs as Powell testimony and jobs data loom


Bond yields fell on Monday ahead of testimony starting Tuesday from Federal Reserve Chair Jerome Powell and crucial jobs data later in the week.

What’s happening
  • The yield on the 2-year Treasury
    slipped by 2.5 basis points to 4.846%. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    retreated 3.2 basis points to 3.927%.

  • The yield on the 30-year Treasury
    fell 3.6 basis points to 3.844%.

What’s driving markets

Benchmark 10-year Treasury yields, which hit 4.08% last week, were dipping to 3.923% after investors spied value in yields near their highest since 2008.

Yields had risen sharply in recent weeks after stronger-than-forecast economic data raised fears the Federal Reserve may have to hike interest rates more than expected in order to dampen inflation still running at more than three times the central bank’s 2% target.

Fixed income markets will likely be beholden in coming sessions to the semi-annual congressional testimony from Powell on Tuesday and Wednesday, and then the nonfarm payrolls report on Friday.

Markets are pricing in a 72.3% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5.0% after its meeting on March 22nd, according to the CME FedWatch tool.

The central bank is expected to take its Fed funds rate target to 5.44% by October 2023, according to 30-day Fed Funds futures.

Economic data due on Monday include January factory orders at 10 a.m. Eastern.

What are analysts saying

“Following another week of large fluctuations in the core [bonds], short-term positions are trying to find a new level to operate on, but we believe some degree of volatility may persist in the system, as soft data in the U.S. continues to overperform the rest of G10, ” said Luis E. Costa, strategist at Citi.

“That said, it is important to acknowledge that short-term positioning in U.S. rates has changed quite a lot over the past week into shorter rates territory. It is going to be a heavy week in terms of economic data, ending with the NFP number on Friday. Buckle up,” he added.




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