US yields ease as market braces for potential dovish Fed comments
JOLTS, consumer confidence reports briefly boost yields
U.S. 10-year yields slide for four straight days
U.S. 2/10 yield curve narrows inversion
U.S. rate futures price in 67 bps of cuts in 2024
Focus on Wednesday's Treasury refunding
Adds new comment, bullets, updates prices
By Gertrude Chavez-Dreyfuss
NEW YORK, July 30 (Reuters) -U.S. Treasury yields drifted loweron Tuesday in choppy trading, as investors geared up for a Federal Reserve that is expected to hold interest rates unchanged this week, while flagging monetary policy easing at the September meeting.
U.S. yields did edge higher earlier aftera generally positive consumer confidence report and followingwidely tracked jobs data that continuedto show a resilient labor market.
Thereports thoughdid not alter expectations that the Fed will keep its benchmark overnight rate in the 5.25%-5.50% range for an eighth straight meeting on Wednesday. The Fed is also widely expected to signal it will cut interest rates two months from now for the first timein more than four years.
"The whisper expectation is for the Fed to acknowledge softness in inflation and the labor market and maybe acknowledge the potential for policy adjustment in September," said Thomas Urano, co-chief investment officer and managing director at Sage Advisory in Austin, Texas.
"Absent that, the market would be short-term disappointed. Ultimately, we think the data will continue to show a much normalized labor market, if not weak, along with an inflation that's running in the Fed's target zone."
Aside from the Fed decision, theTreasury on Wednesday will announce auction sizes for the sale of bills, notes, and coupons in a quarterly refunding aimed at raising new cash from private investors. The market does not expect any change in auction sizes as disclosed in the May refunding announcement, but some banks like Barclays will be watching out for Treasury's guidance on how long those will remain unchanged.
Tuesday's data, meanwhile, showed U.S. consumer confidence unexpectedly rose in July, but remained in a tight range of the past two years. The Conference Board's consumer confidence index increased to 100.3 this month from a downwardly revised 97.8 in June. Economists polled by Reuters had forecast the index falling to 99.7 from the previously reported 100.4.
At the same time, U.S. job openings fell marginally in June while data for the prior month was revised higher, suggesting a labor market that is slowing but stable.
Job openings, a measure of labor demand, dropped 46,000 to 8.184 million by the last day of June, the according to the Job Openings and Labor Turnover Survey, or JOLTS report. Data for May was revised higher to show 8.230 million unfilled positions instead of the previously reported 8.140 million.
Following the data, Jeffrey Roach, chief economist at LPL Financial, said business activity was weaker as consumers have pulled back on buying plans for big-ticketitems such as autos and homes. "If the labor market does soften, we should expect consumer spending to slow, especially for discretionary items."
In afternoon trading, the benchmark 10-year yield US10YT=RR was down 1.7 basis points (bps) at4.16%, slipping for four straight sessions.It slid to a two-week trough on Monday.
U.S. 30-year bond yields US30YT=RR dipped as well to 4.416%, down 1.7 bps.
On the short end of the curve, the U.S. two-year US2YT=RR yield, which typically moves in line with interest rate forecasts, fell 2.2 bps to4.364%.
The closely watched U.S. two-year/10-year yield curve narrowed its inversion, or steepened to minus 20.8 bpsUS2US10=TWEB, as investors look ahead to theFed's incoming rate-cutting cycle.
Yield curves typically steepen ahead of a Fed easing phase, with investors pricing in lower yields on the front end. A steeper curve shows longer-dated yields rising more than shorter maturities, with a normal upward slope.
The U.S. rate futures market continues to fully price in a rate cut in September, with about 67 bps factored in for total easing this year, according to LSEG calculations. That's equivalent to about two to three rate cuts of 25 bps each.
Reporting by Gertrude Chavez-Dreyfuss; Editing by Will Dunham and Andrea Ricci
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