US Treasury yields have increased following recent economic data that suggests the Federal Reserve may delay interest rate cuts. The data indicated resilience in both the job market and consumer spending. Short-maturity Treasury yields, which are particularly sensitive to Federal Reserve rate change expectations, saw increases, with two-year notes rising as much as 4 basis points to 3.62 per cent, the highest level since December 10. However, thirty-year yields experienced a slight decrease and remained near their starting point for the year.
Yields across various maturities reached session highs early in the US session after data revealed a smaller-than-expected increase in applications for US jobless benefits last week. This points to low levels of layoffs. Furthermore, a separate report indicated a solid increase in consumer spending in November, suggesting that rising wages are contributing to economic growth in the fourth quarter. A selloff in the UK bond market also contributed to the moves.
In a positive sign for bond investors, the Federal Reserve’s preferred inflation measure, derived from consumer spending data, showed only a slight increase, aligning with economists’ estimates. After three-quarter of one percentage point reductions in the target band for the US overnight lending rate late last year, Fed officials signaled they are inclined to pause at their next meeting, taking place next week, from January 27 to 28.
Short-term interest rate futures contracts are pricing in scant odds of a move this month, while continuing to mostly price in one by midyear and a second by year-end. US Treasuries had slumped earlier in the week amid international trade tensions and a sell-off in the Japanese government bond market, but recouped much of its losses after good demand for a sale of 20-year bonds and a reversal on a tariff threat.
