(Bloomberg) -- Treasuries were mixed in late trading Tuesday as comments by San Francisco Fed President John Williams boosted the market-implied odds of a Fed rate increase in March, lifting short-maturity yields, while longer-dated debt benefited from month-end demand.
The two-year yield was higher by 3 basis points, while the 30-year yield was lower by 1.7 basis points as of 3:40 p.m. in New York. The yield curve from five to 30 years, which steepened after Johnson & Johnson joined the corporate-issuance calendar with a deal including 30-year bonds, subsequently flattened by more than 4 basis points. Ahead of President Donald Trump's speech to Congress at 9 p.m. ET, the administration's failure to reach agreement with congressional Republicans on tax cuts and budget principles remained in focus.
- Short-maturity yields reached session highs in late U.S. trading after Fed's Williams said he expects an interest-rate increase to receive “serious consideration” when FOMC meets March 14-15
- Monday's trend of pricing in higher odds of a Fed hike in March continued Tuesday with selling of Dec17 eurodollars and April fed funds futures
- 9 more Fed speakers, including Fischer and Yellen on Friday, are slated to speak before Fed's self-imposed media blackout ahead of March 15 meeting
- Monthly rebalancing of bond-market indexes was set to extend the duration of Bloomberg Barclays Treasury Index by an estimated 0.11yr, potentially spurring buying
- Dimming outlook for quick congressional action on Trump's fiscal agenda, which helped drive gains for Treasuries last week, persisted as McConnell said Trump's budget cuts probably can't pass Senate; timing of tax cuts and other fiscal stimulus that Trump promised has been a principal driver of yields since Election Day
- Long-end yields declined even as IG credit issuance slate totaled $23.5b including $4.5b J&J deal
- Mixed U.S. economic data supported USTs in early trading; while 4Q GDP est. was unchanged at 1.9% vs median est. for a revision to 2.1%, personal-consumption component underwent bigger-than-forecast upward revision to 3%; separately, January trade deficit, a drag on 1Q growth, widened more than forecast to $69.2b
- Data slate also included bigger-than-forecast increases in Chicago PMI and Richmond Fed Manufacturing, both for February
--With assistance from Edward Bolingbroke
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum
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