Yields fall as Fed minutes, Powell speech in focus

NEW YORK: US Treasury yields fell on Tuesday as the prospect of more central bank easing boosted demand for government debt, while concerns about Italy's government and Britain's tumultuous exit from the European Union added safe haven buying.

Investors are focused on meetings by the Federal Reserve and the European Central bank next month, when the central banks are expected to cut rates as both regions face slowing growth.

The US central bank will release minutes from its July meeting on Wednesday, while Fed Chairman Jerome Powell is due to speak on Friday, where he is expected to give guidance on whether a rate cut is likely in September.

"The major event is definitely Powell on Friday and we will see how he talks about the markets and what the expectations are for the September meeting," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

The prospect of further US rate cuts has increased since the yield curve between two-year and 10-year notes inverted last Wednesday for the first time since 2007, signaling that a recession is likely in the next one to two years.

The Fed said in July that further rate decreases may not be needed following its first cut in over a decade, but investors will be looking to see if Powell gives a different view in light of recent market activity.

Interest rate futures traders are pricing in a 100 percent chance of a September rate cut, according to the CME Group's FedWatch tool.

Benchmark 10-year notes were last up 16/32 in price to yield 1.544%, down from 1.598% late on Monday.

The two-year, 10-year yield curve flattened to 4 basis points, from 6 basis points.

Concerns about the collapse of Italy's government and Britain exiting the EU without an deal also created some safe-haven demand on Tuesday.

Luigi Di Maio, head of the ruling 5-Star Movement, signaled the imminent demise of Italy's coalition government by thanking Prime Minister Giuseppe Conte for his time in office.

Prime Minister Boris Johnson's demand that the European Union reopen the Brexit divorce deal was rebuffed by the bloc, which said Britain had failed to propose any realistic alternative to an agreed insurance policy for the Irish border.