Yields inch higher before Powell speech
By Alden Bentley
NEW YORK, Sept 30 (Reuters) -U.S. Treasury yields rose early on Monday ahead of an afternoon speech by Federal Reserve Chair Jerome Powell which will be scrutinized for signals on whether the central bank will ease by another half a percentage point at its November meeting.
The yield on the benchmark U.S. 10-year note US10YT=RR rose 1.3 basis points from late Friday to 3.762%.
Powell's comments, due at 1:55 p.m. EDT/1755 GMT, at the National Association of Business Economics' annual meeting look set to be his first on monetary policy since the Federal Open Market Committee lowered the policy rate by 50 basis points on Sept. 18, after months of speculative market swings over whether it would go with a quarter percentage point easing, or half.
In addition he is expected to elaborate on the considerations that will frame an expected series of reductions in borrowing costs in to 2025.
Its more aggressive cut has the market cycling all over again over whether the remaining two meetings this year would end with 50 or 25 basis point cuts.
"I'm waiting to see what we hear from Powell this afternoon. I'm not expecting any surprises," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.
"I think his words will clearly carry a lot of sway within the committee."
Based on the fed funds futures 0#FF: term structure, for November traders see a 58% chance of a 25 bps cut in the policy rate, which was lowered to a 4.75%-5.0% target range two weeks ago.
The Fed had held rates at 5.25%-5.50% since July 2023 after more than a year of aggressive tightening from near zero to cool inflation.
The two-year note yield US2YT=RR, which typically moves in step with interest rate expectations, was up 3.9 basis points at 3.6022%.
The 30-year bond US30YT=RR yield rose 0.2 basis points to 4.1002%.
The market is also on alert for any sign of a slowing economy that would justify another 50 bp cut from a slew of employment data this week, culminating in Friday's September payrolls report. The employment side of the Fed's dual mandate has taken on more importance in the last two months or so as inflation cooled.
Tuesday brings the August JOLTS job openings release and on Thursday ADP national employment data and weekly jobless claims will set the stage for the main employment news Friday.
"We definitely switched off on inflation and we're uber focused on jobs," Rajappa said.
The closely watched gap between yields on two- and 10-year Treasury notes US2US10=TWEB, considered a gauge of growth expectations, was at 15.8 bps, flatter than 19 bp late Friday.
The implied breakeven inflation rate on 10-year Treasury Inflation Protected Securities (TIPS) US10YTIPS=TWEB was at 2.1564%.
The five-year TIPS US5YTIPS=TWEB breakeven inflation rate was at 2.0594%. This suggests that investors think annual inflation will average near the Fed's 2% target rate for the next five years.
Reporting by Alden Bentley; Editing by Susan Fenton
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