10-year Treasury yield ends lower as traders await jobs data, Fed decision this week

See: Biden vows retaliation after 3 Americans killed, dozens wounded in drone attack by Iran-backed militia in Jordan

Yield moves

• The yield on the 2-year Treasury note BX:TMUBMUSD02Y was off 4.5 basis points, to finish at 4.320% on Monday after ending last week at 4.365%, according to FactSet data. Yields and debt prices move opposite to each other.
• The 10-year Treasury note BX:TMUBMUSD10Y fell 7 basis points to end at 4.089%, down from 4.159% at 3 p.m. Eastern time on Friday. Monday’s movement was the largest daily yield decline since Dec. 27, according to Dow Jones Market Data.
• The yield on the 30-year Treasury bond BX:TMUBMUSD30Y declined 5.5 basis points, ending at 4.333% versus 4.388% late Friday.

Market drivers

The Treasury Department said Monday it expects to borrow $760 billion in the first quarter of 2024, which is $55 billion lower than the October estimate due to projections of “higher net fiscal flows” and “a higher beginning-of-quarter cash balance,” the department said in a press release.

Looking ahead to the second quarter, Treasury said it expects to borrow $202 billion in net marketable debt with a cash balance of $750 billion. Borrowing needs are usually less in the April-June quarter because individual income-tax returns are due on April 15 each year.

Meanwhile, “the Fed is expected to begin tapering its quantitative tightening in the second quarter, which will reduce the amount of debt the Treasury needs to sell to private investors,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics, in a Monday note.

Additional financing details related to the Treasury’s quarterly refunding will be released at 8:30 a.m. Eastern time on Wednesday.

See: Wall Street is counting on Treasury’s borrowing needs to trend lower between now and June

Later this week, the Fed will conclude a two-day policy meeting on Wednesday. The central bank is seen as virtually certain to leave the fed-funds rate unchanged at 5.25% to 5.5%, but investors will key in on the policy statement and, in particular, remarks by Fed Chair Jerome Powell for clues on the timing of expected rate cuts.

Fed-funds futures traders have priced in a slightly better than 50% chance of a quarter-point cut by the Fed’s March 20 meeting, and have priced in a more than 50% chance the fed-funds rate will fall to at least 3.75% to 4% by December, according to the CME FedWatch Tool.

Read: Fed decision: Powell will keep door open for first interest rate cut in March

“Powell probably won’t alter current market sentiment. The economy is holding up very well but inflation is evolving favorably as well,” analysts at KBC Bank in Brussels said in a client note.

“The Fed Chair against that background probably isn’t in the mood for being outright hawkish. We think that anything bar the latter will prolong the dovish tide in markets,” they added.

The December jobs report is also due out on Friday and will be watched for signs of cooling in the labor market.

Traders also kept an eye on oil prices, which ended lower on Monday after a three-session climb. U.S. CL00, +0.54% and global BRN00, +0.56% crude benchmarks rallied last week to their highest levels since November, boosted by concerns over tensions in the Middle East as well as U.S. production outages due to cold weather.