Yields bounce as Fed and economic data soothe frayed nerves
Updates at 0930 GMT
By Harry Robertson and Ankur Banerjee
Aug 6 (Reuters) -U.S. Treasury yields rose further away from one-year lows on Tuesday as commentsfrom Federal Reserve officials and economic data helped to allaythe recession fears that roiled global markets on Monday.
The two-year US2YT=RR U.S. Treasury yield, which is highly sensitive to interest rate expectations, was last up 9 basispoints (bps) to 3.973%.
It tumbled as low as 3.654% on Monday, a level not seen since April 2023, before stronger-than-expected data helped push it back higher. Yields move inversely to prices.
Survey data showed the vast U.S. services sector rebounded from a four-year low last month, with a measure of employment rising for the first time since January.
"Markets might have overreacted during a hot summer," said Benjamin Schroeder, senior rates strategist at ING.
The yield on the benchmark U.S. 10-year Treasury note US10YT=RR was 7 bpshigher at 3.848%, a sharp reboundfrom the more than one-year low of 3.667% hit on Monday.
Last week's softer-than-expected U.S. job data stoked worries among investors about a recession and led to a plunge in stocks, with traders fleeing to safe haven assets.
Investors have also been grappling with a dramatic rally in the Japanese yen which hasrocked the country's markets and rippled around the world.
Yields got a lift late on Monday after policymakers pushed back on against the notion that soft job data means the economy is in trouble.
The jobs data left "more room for confidence that we're slowing but not falling off a cliff," San Francisco Fed President Mary Daly said at an event in Hawaii.
Chicago Fed President Austan Goolsbee said: "You see jobs numbers come in weaker than expected but not looking yet like recession."
Goolsbee said the Fed is focused on employment, inflation and financial stability. "If the conditions collectively start coming in...that there's deterioration on any of those parts, we're going to fix it," he said.
Traders are now anticipating 110 bps of easing this year from the Fed, compared to more than 125 bps on Monday. They now see a 75% chance of an outsized 50 bp cut in September, down from a near certainty on Monday, money market pricing showed.
"We do not think that the U.S. economy - or Europe - is headed for a hard landing," said Mohit Kumar, chief economist for Europe at Jefferies.
"The aggressive market reaction over the last few sessions was due to a combination of heavy positioning, unwind of carry trades, summer illiquidity and geopolitical concerns."
The gap between two-and 10-year Treasury notes US2US10=TWEB was last at minus 12 bps, after reaching 1.50 bps briefly on Monday. It was the first time it has turned positive since July 2022.
U.S. bond yields drop on Monday before rebounding https://reut.rs/4fyBRLW
Reporting by Harry Robertson and Ankur Banerjee; Editing by Kim Coghill and Sharon Singleton
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