Treasury Yields Fall From Four-Month Highs as the Inflation Report Approaches

On Tuesday morning, Treasury yields experienced a decline, attracting buyers of U.S. government debt due to the allure of the highest market-based rates since November.

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Here's a breakdown of the changes:

• The yield on the 2-year Treasury note (BX:TMUBMUSD02Y) decreased by 3.3 basis points to 4.756%, down from 4.789% recorded on Monday. Monday's figure marked the highest level since November 27, based on data from Dow Jones Market Data at 3 p.m. Eastern time.
• The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) dropped by 3.6 basis points to 4.386%, compared to 4.422% on Monday.
• Similarly, the yield on the 30-year Treasury note (BX:TMUBMUSD30Y) saw a decline of 2.7 basis points to 4.525% from Monday's 4.552%. Monday's rates for the 10- and 30-year Treasuries were the highest since November 24.

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Market drivers:

Despite mostly robust U.S. economic data, investors maintain expectations that the Federal Reserve will implement interest rate cuts by the end of the year, albeit at a slower pace than previously anticipated. The upcoming release of March's consumer-price index (CPI) report on Wednesday is anticipated to provide significant insights, potentially influencing market movements.

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According to the CME FedWatch Tool, the probability of a 25-basis-point Fed rate cut by June stands at 56.3%, a slight decrease from 61.5% recorded a week ago. Fed-funds futures traders generally anticipate at least two rate cuts by December.

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Additionally, on Tuesday, Treasury is scheduled to auction $58 billion of 3-year notes at 1 p.m. Eastern time.

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Insights from strategists:

Thierry Wizman, global FX and rates strategist at Macquarie, emphasized the significance of U.S. inflation data amidst the ambiguity surrounding labor-market indicators. Despite strong hiring data, weak hiring surveys add complexity. Therefore, the upcoming March CPI report holds paramount importance as it could significantly shape the outlook for Fed policy in the ensuing months.

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