Treasurys

Traders are no longer fully pricing in a rate cut before November, while at the start of the year, cuts beginning in March were fully priced in.

Global yields rose on Thursday as markets around the world adjusted to central banks keeping interest rates higher for longer, with the US two-year yield briefly exceeding 5% for the first time since November.

Traders ceased fully pricing in a Fed rate cut before September after the March employment report revealed that US payrolls expanded by the most in nearly a year.

Treasuries fell across the curve after data showed manufacturing unexpectedly expanded for the first time since September 2022 — while input costs climbed.

Treasuries fell across the US curve, with shorter maturities leading the way after Federal Reserve Governor Christopher Waller said he wants to see "at least a couple months of better inflation data" before cutting rates.

Treasury yields retreat from 2024 highs with month-end in view

The trend gained momentum this week, when there was strong demand for contracts wagering that 10-year yields will breach 4.5%, a level they haven't exceeded since November.

Treasuries sold off, with two-year yields hitting the highest since before the December central bank "pivot." Swap traders ratcheted down their expectations for a Fed cut before July.

Indeed, investors are also positioning for Friday's consumer-price index revisions because of what happened a year ago: the update was significant enough to cast doubt on overall inflation progress.

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.

The Treasury Department is expected on Wednesday to follow through on its November guidance of a third round of increases in its so-called quarterly refunding auctions of notes and bonds.

Truist sold $3.5 billion of bonds in two parts. The longest portion, an 11-year fixed-to-floating rate security, yields 162 basis points above comparable Treasuries.

Investors are pricing in more than a 50% chance the Fed will lower borrowing costs in March, and expect the central bank's benchmark rate will fall to around 4% by the end of 2024.

Yields dropped across the US curve after data showed job openings fell to the lowest level since March 2021. Concerns about investors being too fast in anticipating policy easing have resurfaced.

But Mary Daly, president of the San Francisco bank, said it's premature to declare victory against inflation and that the central bank isn't contemplating rate cuts at all right now.

A $55 billion auction of five-year bonds saw strong demand, following a soft $54 billion sale of two-year notes. Benchmark 10-year yields dropped to around 4.4%.

The bond market recovery has come amid some bouts of wild back-and-forth swings, yet is gaining ground since the Fed left its benchmark policy rate unchanged earlier this month.

Long-dated Treasury yields had reached the lowest levels in more than a month just a day earlier, attributed to investors and traders positioning for the end of the Fed's historically aggressive tightening cycle.

The Wall Street bank recently shifted its bond recommendation to neutral from underweight — for the first time since June 2020 — though has so far stopped short of an overweight call.

Short-end issuance is being closely watched after the Treasury Borrowing Advisory Committee on Wednesday recommended the department skew future issuance toward shorter maturities where liquidity and investor demand is stronger.