NEW YORK: US Treasury debt yields slipped from multiweek highs on Tuesday, after US stocks fell following a mixed batch of economic data that dampened expectations for an interest rate increase by the Federal Reserve in June.
Yields on US two-year notes, the maturity most sensitive to Fed rate expectations, fell from their strongest level in more than two months hit earlier in the session. The long-end of the curve also retreated, with yields on benchmark 10-year notes slipping after touching a one-month peak.
US Treasury yields had been on an uptrend since Friday when Fed Chair Janet Yellen said gradual rate increases would be appropriate if the economy improves further and the labor market tightens.
The uptrend continued for most of the morning session after the release of the strong US personal income and consumer spending report. But yields slid in the wake of underwhelming data on business activity in the US Midwest and consumer confidence.
"I put a lot of the gain in Treasuries (prices) to the erosion in equities," said Kim Rupert, managing director of global fixed income, at Action Economics in San Francisco.
"The mixed US data was also a factor. Although the weaker reports were second-tier data, they did take out some potential of a Fed hike in June."
Fed funds futures, based on the CME Group's FedWatch tool, moved to price in a 21 percent chance of a June rate hike on Tuesday, from 26 percent shortly after the release of the US personal income and spending data.
In late trading, benchmark 10-year Treasury notes were down 2/32 in price for a yield of 1.842 percent, down from 1.854 percent last Friday. US 10-year yields rose as high as 1.89 percent earlier on Tuesday, their highest since late April.
US 30-year bond prices were flat to higher on the day, yielding 2.641 percent, compared with 2.649 percent late on Friday.
Purchases of longer-dated Treasuries to meet expected month-end changes to portfolio benchmarks also pushed longer-dated bond prices higher, analysts said.
Two-year notes were little changed as well in price, with a yield of 0.878 percent, compared with 0.915 percent late on Friday.
US Treasury debt yields were also pressured by the uncertainty surrounding an upcoming UK referendum on June 23 that will determine whether or not Britain stays in the European Union, analysts said.
According to two new polls by ICM, British voters are moving closer towards voting to exit the European Union in next month's referendum.