2-year Treasury yield ends lower for first time in four sessions as traders await Friday's inflation data

By Vivien Lou Chen

Rates on U.S. government debt finished slightly lower on Tuesday as investors parsed comments from Federal Reserve officials and looked ahead to May inflation data later in the week.

What happened

The yield on the 2-year Treasury BX:TMUBMUSD02Y finished marginally lower at 4.732% versus 4.734% at 3 p.m. Eastern time on Monday. It was the first time in four sessions that the 2-year yield has ended lower.The yield on the 10-year Treasury BX:TMUBMUSD10Y fell 1.1 basis points to 4.237%, from 4.248% on Monday.The yield on the 30-year Treasury BX:TMUBMUSD30Y declined less than 1 basis point to 4.372%, from 4.377% on Monday.

What drove markets

Treasury yields have stabilized in recent days as investors await fresh catalysts.

Data released on Tuesday showed home prices in the 20 biggest U.S. metros set another record high, though growth is slowing. Home prices in the 20 major U.S. metro markets were up 7.2% in the last 12 months ending in April. Separately, consumer confidence fell slightly in June, with Americans anxious about the economy, based on a reading from the Conference Board. Meanwhile, Treasury's $69 billion auction of 2-year notes was met with solid non-dealer bidding.In remarks on Tuesday, Federal Reserve Gov. Lisa Cook said the central bank should be able to lower interest rates with inflation coming down and the labor market cooling, though the timing of any move is uncertain.

A team at Deutsche Bank, including Amy Yang, Matthew Luzzetti, and Brett Ryan, said recent messages from Fed officials maintain a "cautiously optimistic" tone around the inflation outlook, leaving the door open for a September rate cut.

"That said, such an outcome likely requires the next few months to show tame inflation readings similar to May and as [Fed Chair Jerome] Powell indicated, possibly some softening in the growth and labor market data. We continue to see the first rate cut in December followed by two more in the first half of 2025," the Deutsche Bank team said.

To that end, traders will be paying close attention to the May personal consumption expenditure price index data, the Fed's preferred inflation gauge, which is due for release on Friday.

-Vivien Lou Chen

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06-25-24 1550ET

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