US bond yields slip

US Treasury yields fell on Monday as traders reduced their bearish bond positions in advance of new Federal Reserve Chairman Jerome Powell's semi-annual monetary policy testimony before Congress this week. Data showing domestic new home sales hitting a five-month low also supported bond demand, which cooled off as Wall Street stocks rallied in late trading. Last week, the benchmark 10-year yield reached a four-year high near 3 percent on concerns about growing inflation and the US government deficit expected from last year's massive tax overhaul and a two-year budget deal this month.
Powell's debut appearance as head of the US central bank is seen as critical for financial markets trying to determine whether he will take a more hawkish stance in raising interest rates than his predecessors, Janet Yellen and Ben Bernanke. For now, most traders believe Powell will stick to a gradual rate-hike approach despite indications that inflation is perking up. "I would be surprised if he really deviates," said Paresh Upadhyaya, portfolio manager at Amundi Pioneer Asset Management in Boston.
Powell will testify before the House of Representatives' Financial Services Committee on Tuesday and the Senate Banking Committee on Thursday. The yield on 10-year Treasury notes was 2.859 percent, down 1 basis point from Friday. Last Wednesday, it reached 2.957 percent, which was the highest since January 2014, Reuters data showed.
Last week's yield rise was offset by safe-haven demand for Treasuries stemming from recent volatility in the stock market and the emergence of month-end buying to rebalance portfolios, analysts and traders said. "The market was a little overextended on the downside," said Thomas Roth, head of US Treasury trading at MUFG Securities Americas in New York.
In the wake of surprisingly strong data on wage gains and inflation in February, traders have ratcheted up bets that the Federal Reserve might raise interest rates four times in 2018, which is one more increase than what US policymakers signaled in December. Earlier Monday, St. Louis Fed President James Bullard said further rate hikes may become too restrictive for the economy if they are not accompanied by data that shows faster growth and inflation.
The bond market has recovered from last week's torrid pace of supply as the government has increased its borrowing to finance a rising budget shortfall due to the tax cuts and increased spending. Last week's $258 billion worth of Treasury bill and coupon supply was the second largest ever over a three-day period.