Treasury Yields at Year’s Highs Draw Buyers Despite Fed Rethink

Treasury yields reached their highest levels of the year Monday — where they swiftly attracted buyers — as traders decided two Federal Reserve interest-rate cuts are likelier than three this year.

Loss of faith that the Fed will deliver on the three quarter-point rate cuts that policy makers last month said they expected began gathering pace on Friday in response to strong March employment data. Swap contracts that predict Fed rate changes on Monday priced in around 60 basis points of easing this year beginning in September, a view that assigns less than 50% odds to a third cut.

While the new view prompted investors to demand higher rates of return on Treasury notes and bonds — pushing the benchmark 10-year note’s above 4.45% for the first time since November — the enduring expectation even for a smaller amount of Fed easing continues to benefit the market. Among the buyers Monday was an apparent bargain-hunter in the futures market, where a large block trade targeting the 10-year part of the market was done near the cheapest levels of the day.

“Treasury yields are trading now closer to the upper end of our expected range and so it does create a pretty attractive entry point,” said Steven Oh, global head of credit and fixed income at Pinebridge Investments.

Strong demand for 10-year Treasuries is anticipated if the yield tops 4.5%, also for the first time since November. Yields across the maturity spectrum climbed to fresh 2024 highs, including the two-year for the first time since March.