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NEW YORK, Jan 30 – Benchmark US 10-year Treasury yields hovered near two-week lows on Tuesday as investors weighed unexpected strength in the job market with Monday’s announcement by the Treasury Department that it will not need to borrow as much as it forecasted in October.

Markets are highly focused on the labor market because it will likely signal when the Federal Reserve will begin cutting benchmark interest rates this year. The Fed concludes its two-day policy meeting on Wednesday.

While markets have priced in a near-certainty that the Fed will keep benchmark rates at their current level, Fed Chair Jerome Powell’s press conference will likely give clues as to the number of interest rate cuts the central bank expects to see this year.

Markets are now expecting the first 25 basis point cut in May, compared with expectations of a cut at the March meeting at the start of the year. Overall, investors expect 130 basis points in cuts by the end of the year, down from expectations of more than 160 basis points in cuts at the end of 2023.

“It’s the quiet before the storm,” said Frank Rybinski, head of macro strategy at Aegon Asset Management. “For a March cut to happen you’d have to have some pretty clear communication from the Fed laying the groundwork tomorrow, but when you look at the economic data and where the labor market is, it’s hard to have a high degree of confidence that they will see the need to cut.”

US job openings unexpectedly rose in December and data for the prior month was revised higher, the Labor Department said, suggesting that demand in the labor market remains strong. Treasury yields sold off following the data release.

In late afternoon trading, the yield on 10-year Treasury notes was down 3.2 basis points to 4.059%. The yield on the 30-year Treasury bond was down 5.8 basis points to 4.277%.

The dip in yields comes on the heels of Monday’s announcement by the Treasury Department that it will not need to borrow as much as it had forecasted in October, alleviating some concern among investors about oversupply.

Yields closed below their 200-day moving average on Monday, which historically has signaled another 10 to 12 basis point drop over the next few trading sessions, noted Ian Lyngen, head of US rates strategy at BMO Capital Markets.

“It’s easy to envision a breakout that brings 10-year yields comfortably below 4.0%,” he said.

Overall, the Case-Shiller Home Price Index rose 5.40% on the year that ended in November and gained 0.15% on a seasonally adjusted monthly basis, slightly below expectations of a 5.80% annual gain and a 0.5% monthly advance.

“The Fed wants to limit increases of house prices to keep core inflation trending lower,” said Bill Adams, chief economist for Comerica Bank.

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 -25.7 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 1.4 basis points at 4.308%.

(Reporting by David Randall; Editing by Emelia Sithole-Matarise and Marguerita Choy)

NEW YORK, Jan 29 – US Treasury yields slid on Monday at the start of a busy week that includes potentially market-moving jobs data and a Federal Reserve decision after the Treasury Department said it would need to borrow less than its previous estimates.

The US Treasury said late in the session that it expects to borrow USD 760 billion in the first quarter, USD 55 billion lower than the October estimate primarily due to forecasts for increased net fiscal flows and higher cash balance.

The Treasury also announced it expects to borrow USD 202 billion in the second quarter, as it projects a cash balance of USD 750 billion at the end of June.

Concerns over a wave of supply due to the increasing federal deficit pushed yields near two-decade highs in October, though signs that inflation is cooling and the US economy may be on pace for a soft landing have helped bring yields down since.

In late afternoon trading, the benchmark 10-year yield was down 9.4 basis points to 4.066%. It had been down 7.1 basis points prior to the Treasury announcement. The yield on the 30-year Treasury bond was down 8 basis points to 4.310%.

Investors are also bracing for the Federal Open Market Committee (FOMC) rate decision and statement on Wednesday and US non-farm payrolls data on Friday.

There are no fireworks expected in terms of the rate decision, with the Fed widely seen as holding interest rates steady, but some investors believe the US central bank could drop its hiking bias.

Analysts said overnight volume in US Treasuries was about 70% of the average.

“We’re stuck in a range right now of roughly 3.90% at the bottom and about 4.20% at the top here in the 10-year and this is much ado about nothing,” said Stan Shipley, managing director and fixed income strategist, at Evercore ISI in New York.

“It’s not likely that the 10-year is going to move much in front of the FOMC on Wednesday and payrolls on Friday given all the uncertainty.”

Federal funds futures on Monday priced in five rate cuts of 25 bps each for 2024, according to LSEG’s rate probability app. The market is also fully pricing in the first rate cut to occur at the May meeting, with a 91% probability.

At the March meeting, futures see a less than 50% chance of a Fed rate cut, down from as much as 80% three weeks ago.

On payrolls, Wall Street economists expect the US economy to have created 180,000 jobs in January, according to a Reuters poll, down from 216,000 in December. The unemployment rate is expected to have inched up to 3.8%.

In other corners of the bond market, the closely watched yield gap between two- and 10-year US Treasury notes flattened, widening its inversion to minus 21.60 basis points US2US10=TWEB.

Analysts described the yield curve move as a “bull flattener,” in which the decline in long-term rates is steeper than those in short-dated ones. This is a scenario that normally precedes a cut in interest rates by the Federal Reserve.

The bull flattening on Monday suggests a flight-to-safety trade, analysts said, and comes after the killing of three US troops and wounding of dozens more on Sunday in Jordan by Iran-backed militants.

In other maturities, the US two-year yield, which reflects interest rate expectations, was down 5.7 basis points at 4.308%. It had been down 4.3 basis points prior to the Treasury announcement.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by David Randall; Editing by Andrea Ricci, Cynthia Osterman, and Marguerita Choy)

NEW YORK, Jan 29 – A strong economic outlook is helping US stocks weather a rise in Treasury yields, though that could change if factors such as tighter monetary policy drive yields higher or if they move up too fast, Goldman Sachs strategists said.

The S&P 500 and 10-year Treasury yield had been negatively correlated – meaning they have moved in opposite directions – since long-term yields began rising last July, Goldman equity strategists led by David Kostin said in their latest weekly kickstart note.

The S&P 500 sold off sharply over that period as yields marched to a 16-year high in October, making stocks relatively less attractive. Equities staged a swift rebound when yields, which move inversely to bond prices, tumbled in the final months of the year.

In 2024, however, stocks have hit record highs even as the 10-year yield has risen about 30 basis points to 4.2%.

One reason for stocks’ resilience is the improving economic outlook, Goldman’s strategists said.

Since 1990, the S&P 500 has generated a median monthly return of 1.3% when the yield curve steepens, their data showed.

Returns have been substantially stronger when economic growth expectations are improving rather than weakening, regardless of whether the yield curve steepened or flattened, the strategists said.

“As investors worry less about the potential for Fed tightening, growth expectations should become a more important driver of yields, contributing to a less negative correlation between stocks and yields in 2024,” they wrote.

In a separate note, Goldman’s economists raised their fourth-quarter economic growth estimate to 2.4% from 2.1%.

Goldman forecasts the S&P 500 will end 2024 at 5,100, a gain of just over 4% from Friday’s close.

“However, if rates rise substantially from current levels because of shifts in Fed policy or the balance of Treasury supply and demand, equities will likely struggle,” the strategists said.

Moreover, equities will face pressure if Treasury yields rise more quickly than the recent pace, regardless of the reason, they said, noting that rates could be more volatile with the 2024 election.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Richard Chang)