US yields hit three-week highs ahead of Fed meeting

March 18 – Benchmark 10-year US Treasury yields hit three-week highs on Monday as traders looked ahead to the Federal Reserve’s meeting this week for further clues on its rate path this year.

Benchmark 10-year notes’ yields reached 4.348%, up almost 5 basis points on the day and the highest since Feb. 23. The yields are approaching their February high of 4.354%.

Two-year yields touched 4.751%, their highest since Feb. 23. They reached 4.759% last month.

The inversion in the yield curve between two-year and 10-year notes narrowed by 2 basis points to minus 40 basis points.

Market focus is on the Fed’s two-day meeting on Tuesday and Wednesday. It is expected to hold rates steady, with the market’s attention on policymakers’ updated economic and interest rate projections.

“I think that the most important data point is going to be the Fed meeting, and what they show in the summary of economic projections to guide the market through their thoughts on Q1 data,” said Subadra Rajappa, head of US rates strategy at Societe Generale.

Yields rose each day last week following strong economic data reports. These include March 12’s report showing the consumer price index (CPI) rising 0.4% last month, driven largely by higher costs for gasoline and shelter. Thursday’s producer price index (PPI) also exceeded forecasts, rising 0.6% in February versus 0.3% expected.

Traders in Fed funds futures have since reduced bets that the Fed will cut rates by June to 54%, from 59% on Friday, according to the CME Group’s FedWatch tool.

“It seems like a lot of the street is moving towards fewer Fed cuts this year,” said Natalie Trevithick, head of investment grade credit strategy at asset manager Payden & Rygel. “It was questionable why we fell so dramatically in the fourth quarter when everything was so strong. So I think we just went too far too fast, and we’re retracing some of that here.”

The economic data calendar is light this week in lieu of the Fed’s two-day meeting. February housing starts and building permits figures will come on Tuesday, while last week’s initial jobless claims and US services and manufacturing purchasing managers’ index data will come on Thursday.

Last week’s strong data was reinforced on Monday by the National Association of Home Builders’ housing market index, which showed builder confidence rose in March for the fourth month in a row on strong buyer demand, reaching its highest level since July.

The US Treasury Department on Monday auctioned USD 76 billion in 13-week bills and USD 70 billion in 26-week bills. The 13-week auction met with a bid-to-cover ratio of 2.81 times, while the 26-week auction met with a bid-to-cover ratio of 2.76 times.

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

(Reporting by Matt Tracy; Editing by Richard Chang)