US 10-Year Yield Extends Fall on Dovish Fed View

The yield on the US 10-year Treasury note edged up to 4.23% on Monday, as investors braced for a data-heavy week expected to provide further insight into the health of the US economy. Key releases include the delayed employment report, alongside CPI and retail sales data. Markets currently expect the Fed to keep interest rates unchanged in March, with the first rate cut potentially arriving in June and another possible move in September. Treasury prices were also pressured by reports that Chinese regulators have urged domestic financial institutions to curb their holdings of US Treasuries, citing concerns over concentration risks and market volatility. Holdings by China-based investors have declined to $682.6 billion, the lowest level since 2008, from a peak of $1.32 trillion in late 2013. Meanwhile, yields in Japan also moved higher following a historic election victory for Prime Minister Sanae Takaichi, fuelling expectations of continued fiscal expansion.

The yield on the US 10-year Treasury note held steady around 4.22% on Monday after last week’s heightened volatility, as traders awaited key economic data delayed by the partial government shutdown. Markets will see the January jobs report on Wednesday, alongside December retail sales data, with recent indicators pointing to a slowing labor market. The postponed January consumer price index reading is scheduled for Friday. Markets currently expect the Federal Reserve to keep interest rates unchanged in March, with potential cuts in June and possibly September. On Thursday, Treasury yields dropped sharply as weak US jobs data and selloffs in tech stocks, precious metals, and cryptocurrencies drove safe-haven demand for bonds. Sentiment improved on Friday after preliminary data showed the University of Michigan consumer sentiment index unexpectedly climbed to a six-month high.

The yield on the US 10-year Treasury note rose 4 basis points to 4.22% on Friday, partially retracing a 10bps drop in the previous session, as risk appetite returned to markets. On Thursday, weaker-than-expected US labour data raised concerns about the health of the economy and, alongside a tech sell-off and a sharp decline in crypto assets, prompted a flight to safety into Treasuries. Sentiment improved on Friday amid a rebound in technology stocks and preliminary data showing that the University of Michigan consumer sentiment index unexpectedly climbed to a six-month high. Looking ahead, investors will focus on the delayed US jobs report and the upcoming CPI release next week for further clues on economic momentum and the Federal Reserve’s policy outlook. Markets are now pricing in around 58bps of rate cuts by the Fed this year, up from about 50bps earlier in the week.