Treasury 10-Year Yield Eyes 4% As Bonds Dip Ahead Of U.S. Data

(Bloomberg) -- The US Treasury market extended losses for a fourth day, putting the 10-year yield near 4%, reflecting investor caution ahead of the release of fresh economic data and the Federal Reserve’s meeting minutes.

Yields rose about four basis points across the curve, sending the benchmark 10-year rate to 3.98%, the highest since Dec. 14. UK bonds also edged lower, while German peers erased an earlier drop to trade little changed.

Traders awaited US manufacturing, job openings data and minutes from the Fed’s last policy meeting due later on Wednesday to get a better sense of whether the sharp rally in Treasuries and expectations of deep interest-rate cuts this year are justified. Swaps pricing points to about 145 basis points of cuts through December.

“Some investors may have taken the start of the year, and the better liquidity that comes with fully manned desks, as an opportunity to express the view that last year’s move has gone too far,” Rabobank’s strategists Richard McGuire and Lyn Graham-Taylor wrote in a note.

Wednesday’s data includes the ISM manufacturing report for December and the JOLTS report of job openings for November. Recent remarks by FOMC officials suggest they’re worried the unemployment rate is on the verge of a persistent increase, as forecast by Bloomberg Economics.

Treasuries Start Year on Back Foot as Global Rate-Cut Bets Ease

Those readings will be followed by minutes from the FOMC’s December meeting, a key catalyst for the sharp rally in Treasuries after Fed Chair Jerome Powell said that policymakers had discussed interest-rate cuts. The two-year yield, among the most sensitive to monetary policy, is trading around 4.35%, some 40 basis points lower than prior to the meeting. 

“We do not expect such sharp cuts to be supported by the discussion in the minutes, but we will be on the lookout for any mention of rate cuts, what would trigger them and how soon they might come,” said Karl Steiner, head of analysis at Skandinaviska Enskilda Banken AB.

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