Treasuries snapped two days of losses on Tuesday as buyers returned to the U.S. government debt market and Federal Reserve officials reiterated the need to keep interest rates unchanged.
What happened
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The yield on the two-year Treasury note BX:TMUBMUSD02Y fell 6.4 basis points to 4.406% from 4.470% on Monday.
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The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 7.2 basis points to 4.091% from 4.163% on Monday.
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The yield on the 30-year Treasury note BX:TMUBMUSD30Y fell 4.9 basis points to 4.296% from 4.345% on Monday.
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Ten-year and 30-year Treasury yields ended Monday with their biggest two-day advance since June 2022 and March 2020, respectively. The two-year rate made its biggest two-day advance since May last year.
What drove the markets?
On Tuesday, regional Fed officials stressed the need for the central bank to back off the timing of its first interest rate cut of the year.
Cleveland Fed President Loretta Mester said it would be a mistake to cut interest rates too early or too quickly without enough evidence that inflation is moving sustainably to 2%. Meanwhile, Neel Kashkari of the Federal Reserve Bank of Minneapolis said, “We're not there yet” on inflation.
The $54 billion 3-year Treasury note auction was met with good demand, which helped maintain buying momentum on Tuesday. Traders now turn their attention to the $42 billion sale of 10-year Treasuries on Wednesday.
Meanwhile, Fed futures traders expected an 80.5% chance that the central bank would leave benchmark interest rates unchanged at between 5.25% and 5.5% after the end of its two-day meeting on March 20, according to the CME FedWatch tool.
The probability of a rate cut of at least 25 basis points by the next meeting in May is expected to reach 66.1%. The central bank is still mostly expected to lower the federal funds rate target to at least between 4% and 4.25% by December.
In separate developments, the Securities and Exchange Commission took action to tighten its oversight of the Treasury market by imposing new rules that will require many private funds to register as traders.
