US Treasury yields steady as delayed data clouds economic outlook

NEW YORK – US Treasury yields were little changed on the day on Wednesday as traders parsed data releases that have been delayed and show a less complete than usual picture of the US economy following a 43-day federal government shutdown, with the Federal Reserve not expected to cut rates again for several months.

Data on Tuesday showed that the unemployment rate unexpectedly rose in November, though analysts say that gaps in the data make the release less credible than usual.

The next major US economic release will be consumer price inflation for November on Thursday.

“The market really still lacks a data focus,” said Tom di Galoma, managing director at Mischler Financial Group, though “there seems to be a lot of scrutiny on it – whether or not it’s the right data and whether or not it’s going to change drastically in the future.”

A sharply divided Fed cut interest rates last week but signaled borrowing costs are unlikely to drop further in the near term as it awaits clarity on the direction of a job market showing signs of softening, inflation that “remains somewhat elevated” and an economy it sees picking up steam next year.

Fed Governor Christopher Waller said Wednesday that the US central bank still has room to cut interest rates amid concerns that the job market has softened.

Fed funds futures traders are pricing in only a 24% chance of a rate cut at the Fed’s January 27-28 meeting, with the next cut seen likely in April.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, was last up 0.8 of a basis point on the day at 3.487%.

The yield on benchmark US 10-year notes was little changed at 4.149%.

The yield curve between two- and 10-year yields steepened by around half a basis point to 66 basis points.

Bond yields have been largely rangebound for the past few months as traders wait for fresh catalysts that will drive Fed policy.

“It just seems to me that until we get a new Fed chair and get some kind of direction, or the economy either does much better or much worse, there’s probably not a lot to read into here,” said di Galoma.

US President Donald Trump told the Wall Street Journal last week that National Economic Council Director Kevin Hassett and former Fed Governor Kevin Warsh were at the top of the list for Fed chair. The WSJ also reported on Tuesday that Trump is set to interview Waller for the job on Wednesday. The new chair will replace Jerome Powell when his term ends in May.

Waller said on Wednesday he would “absolutely” defend the US central bank’s independence if it were challenged.

The Treasury will sell USD 13 billion in 20-year bonds on Wednesday to good demand.

The bonds sold at a high yield of 4.798%, close to where they were trading before the auction. Demand was 2.67 times the amount of debt on offer, the highest since October.

The US government will also sell USD 24 billion in five-year Treasury Inflation-Protected Securities on Thursday.

(Reporting by Karen Brettell; Editing by Andrea Ricci and Nick Zieminski)