Treasury yields finish lower as buyers return and Fed officials reiterate need to hold off on rate cuts

What happened

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  dropped 6.4 basis points to 4.406% from 4.470% on Monday.

• The yield on the 10-year Treasury
  BX:TMUBMUSD10Y
  fell 7.2 basis points to 4.091% from 4.163% on Monday.

• The yield on the 30-year Treasury
  BX:TMUBMUSD30Y
  retreated 4.9 basis points to 4.296% from 4.345% on Monday.

• Ten- and 30-year Treasury yields had ended Monday with their biggest two-day advances since June 2022 and March 2020, respectively. The 2-year rate had its biggest two-day advance since May of last year.

What drove markets

On Tuesday, regional Fed bank officials reinforced the central bank’s need to push back on the timing of the first rate cut this year.

Cleveland Fed President Loretta Mester said it would be a mistake to cut rates too soon or too quickly without sufficient evidence that inflation is moving sustainably back to 2%. Meanwhile, Neel Kashkari of the Minneapolis Fed said that “we are not quite there yet” on inflation.

Treasury’s $54 billion auction of 3-year notes was met with decent demand, which helped to keep Tuesday’s buying momentum intact. Traders now turn their attention to Wednesday’s $42 billion sale of 10-year Treasurys.

Meanwhile, fed-futures traders priced in an 80.5% probability that the central bank will leave its benchmark interest rates unchanged at between 5.25% and 5.5% after its two-day meeting ends on March 20, according to the CME FedWatch Tool.

The probability of at least a 25-basis-point rate cut by the subsequent meeting in May is seen at 66.1%. The central bank is still mostly expected to take its fed-funds rate target down to at least between 4% and 4.25% by December.

In separate developments, the Securities and Exchange Commission took action to tighten its oversight of the Treasury market by imposing new rules that will require many private funds to register as so-called dealers.