Bonds steady as risk appetite improves

NEW YORK: US benchmark 10-year Treasury yields were steady on the day on Tuesday, but above 15-month lows reached on Monday as risk assets showed signs of stabilization after two days of weakness.

Stocks have been hurt while bonds have gained since the three-month, 10-year portion of the Treasury yield curve inverted on Friday on concerns over global growth, and after the Federal Reserve on Wednesday abandoned projections for any interest rate hikes this year.

Wall Street's main indexes gained for the first time in three sessions on Tuesday, giving hope that some of the bearish sentiment on the economic outlook may be lifting.

"You really had the first sign of stability in risk assets," said John Briggs, head of strategy for the Americas at NatWest Markets in Stamford, Connecticut. "I think you're just seeing a bit of a pullback in terms of the poor sentiment that dominated the past few days."

Expectations of an interest rate cut by December jumped as high as 75 percent on Monday, based on trading in the interest rate futures market. That fell to around 50 percent on Tuesday, according to the CME Group's FedWatch Tool.

"Some of the pricing in the front-end had gone a little bit too far when it came to what the market was pricing in in terms of rate cuts in the near term, that's the sector that's given it up the most," said Briggs.

Benchmark 10-year note yields were last 2.414, steady on the day but above the 2.377 percent level reached on Monday, which was the lowest since December 2017.

Bonds recouped much of their earlier price weakness after data showed US homebuilding fell more than expected in February, while consumer confidence also ebbed in March.

The yield curve between three-month notes and 10-year yields was inverted by around four basis points, slightly less than an inversion of around five basis points on Monday. If it persists the inversion is seen as an indicator that a recession is likely in one to two years.

The Treasury Department saw strong demand for a $40 billion sale of two-year notes on Tuesday despite lower yields, the first sale of $113 billion in coupon-bearing supply this week.

The high yield was around one basis point below where the notes traded before the auction.

The government will also sell $41 billion in five-year notes on Wednesday and $32 billion in seven-year notes on Thursday.