US yields flat to modestly lower as weak data keeps rate cuts on track

US Treasury yields were little changed to slightly lower on Tuesday in choppy trading, weighed down by a batch of soft economic data that keeps the Federal Reserve firmly on track to cut interest rates by the summer or later.

Data showed orders for long-lasting US manufactured goods fell by the most in nearly four years in January, dropping by 6.1% last month, due in part to a sharp decline in bookings for commercial aircraft. Economists polled by Reuters had forecast durable goods orders tumbling 4.5%. Orders fell 0.8% year-on-year in January.
 

At the same time, US consumer confidence slid in February after three straight monthly increases. The Conference Board's consumer confidence index slipped to 106.7 this month from a downwardly revised 110.9 in January. Economists polled by Reuters had forecast the index little changed at 115.0 from the previoUS ly reported 114.8.
 

In late morning trading, the benchmark US 10-year yield was flat to modestly lower at 4.291%. US 30-year bond yields was also flat at 4.415%.
 

On the shorter end of the curve, US two-year yields slipped 2.3 basis points (bps) to 4.693%.
 

"I would expect Treasuries to be somewhat in a range this week without any sort of catalysts for a sell-off from here," said Subadra Rajappa, head of US rates strategy at Societe Generale.
 

"Our view is that any time you see this rise in Treasuries, it's going to be an opportunity to buy the dip becaUS e the bias for the Fed is going to be for cutting rates," she added.
 

Tuesday's durables report added to a slew of numbers this month, such as retail sales, hoUS ing starts and manufacturing production, which depicted an economy that lost momentum at the start of the year.
 

Investors will next focUS on key inflation data that could provide more clarity on the timing of the easing cycle. The personal consumption expenditures price index (PCE) for January, the Fed's preferred inflation measure, will be released on Thursday.
 

The PCE is expected to have advanced 0.3% on a monthly basis in January, up slightly from the 0.2% increase seen in December, according to a Reuters poll. On a year-over-year basis, PCE is likely to have gained 2.4%, compared with a 2.6% rise in the previoUS month.
 

In other parts of the bond market, the US yield curve steepened, or narrowed its inversion, on Tuesday. The closely watched spread between 10-year and two-year US Treasury yields rose to minUS 40.6 bps, up from minUS 44.5 bps late Monday.
 

The fed funds futures market has priced in a 67% chance of a rate cut at the Fed's June policy meeting, which would be the first since the COVID-19 pandemic, according to LSEG's rate probability app. That was down from roughly a 75% probability seen last week. Rate futures were betting on easing in March two to three weeks ago.
 

An inverted yield curve typically foreshadows recession, predicting eight of the last nine economic slowdowns. This yield curve has been inverted since July 2022.
 

For this year, futures traders have factored in at least three rate cuts of 25 bps each, in line with the Fed's guidance.

Traders had factored in as much as five cuts a few weeks ago.
 

Also on Tuesday, the Treasury will sell $42 billion in US seven-year notes. On Monday, the two-year and five-year auctions had weaker-than-expected results that have been pressured by record volumes.