Long-dated Treasury yields fall

US long-dated Treasury yields fell on Tuesday morning along with those of European bonds, after a Reuters report said the European Central Bank was not quite ready to end its bond-buying scheme at next week's meeting. "There's a pullback in (German) bund yields and we're seeing a little bit of that spill over to the US," said Subadra Rajappa, head of US rates strategy, at Societe Generale in New York.
Long-dated US yields earlier dropped to one-week lows, while those on two-year notes rose after hitting a more than nine-year high last Friday. At 2:55 pm (1955 GMT), benchmark yields were below Friday's close despite recouping some losses in midday trading. The ECB is unlikely to ditch a pledge to keep buying bonds at next week's meeting as policymakers need more time to assess the outlook for the economy and the euro, Reuters reported on Tuesday.
Tuesday's intra-day yield moves may not be particularly meaningful. "It's overall a pretty low volatility day," said Thomas Simons, money market economist at Jefferies & Co in New York. "It's just that we're off (this morning's) highs," Simons continued. Also on Tuesday, the spread between five- and 30-year maturities hit its lowest point in over 10 years, sinking to 47.6 basis points. With this move, the US yield curve resumed its flattening trend after steepening most of last week.
The spread between yields of short- and long-dated maturities has compressed as investors price in the expectation that the Federal Reserve will continue to raise US overnight interest rates, even as long-term inflation expectations have remained low. The rate futures market has priced in a more than 72 percent chance the Fed will raise interest rates at the March meeting, according to the CME's FedWatch.
This week is light on data releases, so it's likely that the market will be focused on Washington. As the continuing resolution expires Friday, investors will be watching Congress to see if it can put together a funding bill in time to avoid a government shutdown. In late afternoon trading, the benchmark 10-year Treasury yield slipped to 2.544 percent at 3:21 pm (2021 GMT), from 2.552 percent at Friday's close. US two-year yields, meanwhile, were at 2.018 percent, above 2.002 percent on Friday.