10-year yields hover near 2-week lows after jobs openings data

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)