U.S. Treasury yields ticked up ahead of the $42 billion 10-year note auction, with investors watching for clues on Fed rate adjustments. Despite recent increases, demand for longer-term debt remains uncertain amid growing deficits. Benchmark 10-year notes rose slightly to 4.113%, while two-year yields edged up to 4.420%. Traders see a reduced 21% chance of a March rate cut, down from 54% last week.
U.S. Treasury yields saw a slight increase on Wednesday as investors prepared for the U.S. Treasury Department’s auction of $42 billion in 10-year notes. Attention also remains on any indications regarding the Federal Reserve’s potential interest rate adjustments.
After a swift rise in yields over Friday and Monday, largely driven by expectations of prolonged higher rates by the Fed, Treasury markets have stabilized. This stabilization followed comments from Fed Chair Jerome Powell, who pushed back against market expectations of a rate cut in March, coupled with stronger-than-expected January jobs data.
The 10-year auction scheduled for Wednesday will gauge demand for longer-term debt as the Treasury seeks to finance a growing budget deficit. Despite concerns, market sentiment appears positive, as demonstrated by solid demand in Tuesday’s $54 billion three-year note sale.
Looking ahead, the Treasury plans to gradually increase coupon auction sizes through April, with a temporary halt expected thereafter. However, the absence of significant catalysts until the release of the Consumer Price Index (CPI) for January next Tuesday may keep the market in a consolidation phase.
Currently, benchmark 10-year notes are yielding at 4.113%, up 2 basis points from the previous day. Two-year yields also rose slightly to 4.420%, albeit down from a recent one-month high.
The yield curve between two-year and 10-year notes, while still inverted, has stabilized around minus 30 basis points after reaching minus 42 basis points on Friday.
Market sentiment regarding a potential rate cut in March has decreased, with traders pricing in a 21% chance, down from 54% a week ago. However, expectations for a rate cut by May remain at 64%, according to the CME Group’s FedWatch Tool.
