US yields dip slightly as traders look to Fed meeting

March 19 – US Treasury yields ticked down on Tuesday from their near-February highs, as traders looked ahead to the Federal Reserve’s interest rate announcement on Wednesday for signs of its rate path for the rest of the year.

Benchmark 10-year notes’ yield fell to 4.306%, from Monday’s close of 4.340%. Yields had approached their February high of 4.354% on Monday.

The two-year yield ticked down to 4.693% from 4.736% on Monday.

The inversion in the yield curve between two-year and 10-year notes narrowed by 1 basis point to minus 40 basis points.

The market is focused on the Fed’s two-day meeting which ends on Wednesday with an interest rate announcement and Fed Chair Jerome Powell’s press conference. The central bank is expected to hold rates steady, but traders are awaiting its economic and interest rate projections for the rest of the year.

Last week’s consumer price index (CPI) and producer price index (PPI) figures for February exceeded forecasts, raising questions about the widely expected June start to the Fed’s rate cuts.

“There’s so much data, and especially this data at the beginning of the year,” said Michael Lorizio, senior fixed income trader at Manulife Investment Management.

“And because economists with tremendous amounts of experience and resources are saying there’s so much seasonality impacting these readings, I think we do need to see – and the Fed rightfully deserves to see – where things are trending before coming to any sort of major conclusions.”

Traders in Fed funds futures have increased their bets to 59.8% that the Fed will cut rates by June, from 54% on Monday, according to the CME Group’s FedWatch tool.

In this week’s light economic data calendar, February housing starts and building permits figures on Tuesday exceeded expectations.

The US Treasury Department on Tuesday held auctions for USD 75 billion in 42-day bills, USD 46 billion in 52-week bills, and USD 13 billion in 20-year bonds.

The 20-year bond auction sold with a high yield of 4.542% and a bid-to-cover ratio of 2.79, the highest since June.

“I think the market’s a bit oversold, and this 20-year auction certainly was a demonstration of that,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG.

“It looks like institutional investors are jumping in with this rate backup,” he said.

The 20-year’s yield has ticked down to 4.556% after Tuesday’s auction, from 4.578% at Monday’s close.

(Reporting by Matt Tracy in Washington; Editing by Jonathan Oatis, Matthew Lewis, and Richard Chang)