Treasury yields continue to jump after Powell interview, PMI data

Yields on U.S. government debt continued to rise at a brisk pace Monday morning, as traders assessed Fed Chairman Jerome Powell’s weekend comments about policymakers “carefully” approaching the question of when to cut interest rates.

What’s happening

  • The yield on the 2-year Treasury
    was 4.428%, up 6 basis points from 4.368% on Friday. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    was 4.117%, up 8.7 basis points from 4.030% on Friday.

  • The yield on the 30-year Treasury
    was 4.312%, up 8.6 basis points from 4.226% on Friday.

Friday saw the biggest one-day yield rise for the 10-year since Sept. 26, 2022, according to Dow Jones Market Data.

What’s driving markets

Federal Reserve Chair Jerome Powell used an appearance on “60 Minutes” to push back again on the idea the central bank would cut rates in March. He said that U.S. economic strength is enabling the Fed to be “careful” about deciding when to cut interest rates.

In data released on Monday, S&P Global’s U.S. services purchasing-managers index revealed that business activity growth accelerated to a seven-month high in January. It came in at 52.5 for last month, up from 51.4 in December. The rate of growth accelerated for the fourth month running to the fastest since last June.

Meanwhile, investors were also still reacting to January’s surprising 353,000 surge in nonfarm payrolls, shown in data released on Friday. The report offered signs of strengthened labor demand. Economists at Barclays said that although some of the key numbers should be interpreted with caution, due to weather effects and other changes, upside risks to the Fed’s interest-rate path are intensifying.

What analysts are saying

“Powell used his ’60 Minutes’ interview as an opportunity to push back further on March rate cut expectations,” said BMO Capital Markets strategists Ian Lyngen and Vail Hartman.

His remarks were very consistent with his press conference last week and “served to further undermine the chances of a March cut,” they wrote in a note. “The evolution of monetary policy expectations is consistent with the typical pattern when the Fed is on-hold of simply rolling forward rate cut expectations with the combination of solid data and the passage of time. While we’re sympathetic to investors’ eagerness to bring forward rate cuts, it was clearly too soon — at least from Powell’s perspective.”

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