(Bloomberg) -- Treasury yields extended Friday's surge, pushing the two-year note's toward its highest level this year, as strong economic data reinforced the message of Federal Reserve officials including Chair Jerome Powell that interest-rate cuts are unlikely to begin before May.
Yields across the maturity spectrum climbed as much as 10 basis points on the day, reaching session highs after the ISM gauge of service-sector activity for January exceeded economist estimates. Friday was the US bond market's worst day in nearly a year after stronger-than-anticipated January employment data dashed hopes for a speedy pivot toward easier monetary policy.
The chance of a quarter-point cut in March dwindled to almost 10% after Powell said in an interview with CBS's 60 Minutes which aired Sunday that Americans may have to wait beyond the Fed's next meeting to cut interest rates. Minneapolis Fed President Neel Kashkari made similar comments Monday, and nine other central bank officials are slated to speak this week.
"There is no reason for US Treasuries to rally," said Althea Spinozzi, a senior fixed-income strategist at Saxo Bank A/S. "If inflation stays stubbornly above the Fed's 2% target, there is a chance that the Fed will disappoint markets on rate cuts."
Just four weeks ago, a March rate cut was considered a near certainty by investors, but Powell last week and again Sunday said officials are looking for more economic data to confirm that inflation is headed down to their 2% target. Annual consumer price growth accelerated slightly to 3.4% in December.
Goldman Sachs Group Inc., Bank of America Corp. and Barclays Plc are among Wall Street banks who last week pushed back their calls for the timing of the first Fed rate cut from March.
European bonds yields also climbed, with UK and most euro-zone two-year yields higher by at least five basis points on the day, 10-year yields by at least seven basis points.
Traders are betting on five quarter-point reductions from the European Central Bank this year, down from nearly seven expected a couple of months ago. The Bank of England is only expected to lower policy rates three times compared to as many as six late last year.
(Adds ISM Services, updates yield levels.)
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