US long-end Treasuries fell as market participants priced a higher term premium amid signs the world's largest economy is more resilient than previously thought.
The yield on 30-year notes rose for a fifth straight session, up three basis points on Tuesday to a two-week high at 4.87%. The two-year yield dropped by the same amount to 3.80%, bear steepening the curve.
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Rates traders are recalibrating their outlook for the US economy after data last week showed strong jobs growth and resilience in the manufacturing sector. Bets on Federal Reserve interest-rate cuts have been pared to 75 basis points by year-end, from as much as 107 basis points on Thursday.
There's “little prospect of a near-term interest-rate cut,” said Benjamin Schroeder, a senior rates strategist at ING. With not much new data scheduled “markets will have the chance to ride the high of stronger payrolls.”
Fed officials are widely expected to keep policy on hold when they meet on Wednesday, signaling they need to wait for more data to show how the new trade policies are affecting the economy, even though President Donald Trump has been ratcheting up pressure for lower rates.
Read more: Bond Traders Swing to Powell's Side as Trump Calls for Rate Cuts
The FOMC meeting will offer “few fireworks,” according to John Velis, Americas macro strategist at BNY. “Tariff policies as announced would have large effects on prices and economic production, but it's too early – and still too uncertain – to be prescriptive on rate policy.”
Trader focus turns to data on the US trade balance for March out Tuesday, with the goods and services deficit expected to widen to a record, alongside an auction of 10-year notes. This comes as optimism that tariff measures may be dialed back builds, after Trump suggested his administration could strike deals with some countries as soon as this week.
“Friday's solid US labor report eased investor worries over an immediate recession,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Ongoing tariff negotiations should lead to more positive headlines.”
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