NEW YORK- The benchmark 10-year US Treasury note yield was lower on Wednesday following comments from a Federal Reserve official about the timing of possible interest rate cuts, easing from a surge in the prior session to a 2-1/2-month high after a hot inflation reading.
Yields had shot higher on Tuesday after data showed consumer prices rose more than expected as rental housing costs jumped, pushing back market expectations for the timing of any possible cuts by the central bank this year.
On Wednesday, yields were slightly lower before extending declines after Chicago Fed President Austan Goolsbee said the Fed’s path back to its 2 percent inflation target rate would still be on track even if price increases run a bit hotter than expected over the next few months, and the central bank should be wary of waiting too long before it cuts interest rates.
The yield on the 10-year Treasury note fell 5 basis points to 4.267 percent percent after touching 4.332 percent earlier in the session, its highest since Dec. 1.
“The market seems to try to be optimistic whenever it can be but so they’ll take any bit of positive news or any bit of positive rhetoric, and the market seems to trade on that, but you can’t fight the data that all continues to be so strong,” said JoAnne Bianco, partner and client portfolio manager, at BondBloxx in Chicago.
“Every time where we’ve seen significant rate cuts in the past, there was something broken in the economy, there’s nothing broken in the economy. That’s not to say something couldn’t break that’s unforeseen, but being optimistic that rates were going to be cut multiple levels this year, that was overly optimistic.”
The two-year US Treasury yield, which typically moves in step with interest rate expectations, fell 8 basis points to 4.578 percent after climbing to 4.673 percent on Tuesday, its highest level since Dec. 13.
Market expectation for a cut by the Fed in June of at least 25 basis points stand at 78.5 percent , according to CME’s FedWatch Tool, while expectations for a cut in May have fallen to 38.5 percent , down from 63.7 percent a week ago.
The yield on the 30-year bond fell 2 basis points to 4.449 percent .
A closely watched part of the US 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 31.26 basis points, slightly less inverted from the negative 34.83 in the prior session.
The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.369 percent , even with the prior session’s close.
