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US government debt yields rose to their highest levels in two weeks on Monday as stubborn inflation and a jump in manufacturing activity dampened expectations for an interest rate cut in 2024.
Benchmark 10-year Treasury yields rose 0.13 percentage point to 4.32 percent, while yields on two-year Treasury bonds, which are considered sensitive to interest rate policy, rose 0.09 percentage point to 4.71 percent.
At current levels, the jump in yields — which move inversely with price — would respectively rank as the third and fifth largest increases in 2024 for two-year and 10-year bonds, according to LSEG data.
The moves came after data released on Friday showed that year-over-year US inflation reached 2.5 percent in February, according to a key measure of personal consumption spending closely tracked by Federal Reserve policymakers, up slightly from January's figure. Data released earlier on Monday showed a jump in the ISM manufacturing index in March.
Traders reacted by slightly reducing expectations for lower US interest rates. Markets are now pricing in cuts of two or three points by the end of the year, down from five or six at the start of 2024.
Monday's Treasury market moves are likely due to “a combination of strong PCE spending data on Friday and a strong ISM index,” said Gennady Goldberg, head of U.S. interest rate strategy at TD Securities.
“Trading is also relatively soft today” due to the Easter holidays in London, “so that may explain some of that.” [the moves]”, he added.
Stephen Brown, deputy chief economist for North America at Capital Economics, wrote that ISM data showing the prices paid index rose to a 20-month high “looks somewhat worrying for the Fed” but “appears to largely reflect rising prices.” oil instead. From a renewed rise in commodity inflationary pressures.
After posting their strongest first quarter in five years, U.S. stock prices on Monday tracked Treasuries lower in early afternoon trading in New York.
The S&P 500 index fell 0.2 percent, with 290 stocks falling on the day. The Nasdaq Composite, which is dominated by technology stocks, rose 0.1 percent. European stock markets were closed.
Asian stocks started the quarter well. China's CSI 300 and Hong Kong's Hang Seng indexes rose 1.6 percent and 0.9 percent, respectively, after a recovery in manufacturing activity in China raised hopes for improved economic growth.
In commodity markets, gold hit a new record high on the first day of the second quarter, continuing its rise that had lasted for several months.
The metal traded at $2,239.3 an ounce in New York on Monday, according to LSEG data, after hitting an intraday high of $2,265.49 earlier.
Brent crude, the global oil benchmark, rose 0.8 percent to $87.73 per barrel.
Additional reporting from Kate Duguid in New York
