Treasuries retreat as market awaits Fed, labor data

Investors will be watching the Fed chair's congressional testimony and the latest jobs data this week for clues about interest-rate cuts.

Treasuries declined ahead of remarks from Federal Reserve Chair Jerome Powell and key labor-market data, which are set to test bond investors’ conviction about interest-rate cuts in the US.

The central banker’s congressional testimony before the House Financial Services Committee could set the stage for a less-dovish message from policymakers at their next meeting in late March. Before and during Powell’s appearance, reports on private-sector job creation and job openings could rattle expectations for broader employment data to be released Friday.

Global bonds are under pressure this year as the declining trend in inflation has slowed and investors flock to riskier assets as stocks and corporate bonds.

“The market has been playing a cat-and-mouse game with the Fed all year,” George Catrambone, head of fixed income at DWS Investment Management Americas, said Tuesday. But the favorable long-term trend for inflation, means that lawmakers’ questions for Powell “will focus on when, not if, there will be rate cuts.”

Treasuries fell on Wednesday, paring gains fueled by a weaker-than-expected gauge of US services-sector activity on Tuesday. The yield on 10-year Treasuries rose one basis point to 4.16%.

While traders still see rate cuts as early as June, their forecast is more aligned with the Fed’s than it was at the start of the year. At the time, the consensus had settled around cuts totaling more than 1.5 percentage point.

Fed policymakers in December anticipated three quarter-point rate reductions this year, on average. Since then, traders have begun weighing the possibility of that number going down. Strategists at Bank of America, for example, observed last week that changes by only two forecasters could move the median to rise by the same amount.

Atlanta Fed President Raphael Bostic said on Monday that an initial rate cut during the third quarter should probably be followed by a pause to assess its impact.

Ahead of Powell’s appearance, the change in employment for February measured by the ADP, a gauge of private-sector job creation, is expected to be 150,000. The JOLTS job openings gauge for January is estimated to have decelerated for the first time since October.

The February employment report coming Friday is anticipated to show a 200,000 increase in nonfarm payrolls and a reversal of January’s increase in the pace of wage growth.