10-year yields fall to one-month low

March 5 – Benchmark 10-year US Treasury yields fell to a one-month low on Tuesday after data showed US services industry growth slowed slightly and as investors prepared for US jobs data for February due on Friday for further clues on Federal Reserve policy.

Traders will also be focused on testimony by Fed Chair Jerome Powell to Congress on Wednesday and Thursday for any fresh clues on monetary policy.

US services industry growth slowed a bit in February amid a decline in employment. A gauge of prices paid for inputs by businesses also fell to 58.6 from an 11-month high of 64.0 in January.

“The services number is the area the Fed is more focused on,” said Ellis Phifer, managing director of fixed income research at Raymond James in Memphis, Tennessee, adding that the inflation and employment components “are some of the biggest factors.”

A drop in yields before the data also reflects investors positioning ahead of Friday’s jobs report.

“The market is repricing itself ahead of that number,” Phifer said.

Employers added an estimated 200,000 jobs last month, according to economists polled by Reuters.

It will follow much stronger-than-expected gains of 353,000 jobs in January that analysts have said was likely due in part to seasonal factors.

Other economic releases due this week will include the Job Openings and Labor Turnover Survey (JOLTS) on Wednesday.

Traders are evaluating when the US central bank is likely to begin cutting interest rates as growth remains relatively strong and inflation gets closer to the Fed’s 2% annual target.

Fed funds futures traders see a 71% probability that the Fed will begin cutting rates in June, up from 64% on Monday, according to the CME Group’s FedWatch Tool.

Benchmark 10-year yields were last down 8 basis points on the day at 4.137% and got as low as 4.112%, the lowest since Feb. 8.

Two-year yields dropped 6 basis points to 4.550%. The inversion in the yield curve between two-year and 10-year notes deepened by 2 basis points to minus 42 basis points.

The Fed accepted USD 444.47 billion in its reverse repurchase agreement operation on Tuesday. Banks and investors have been cutting the amount they loan to the Fed’s reverse repo facility as they find other securities with more attractive rates.

(Reporting by Karen Brettell; editing by Jonathan Oatis and Will Dunham)