U.S. Treasury yields fall to lows ahead of data releases

The U.S. Treasury market is extending its rally for a second day, with yields drifting toward four-week lows as investors position ahead of key economic reports and a round of Federal Reserve commentary that could shape expectations for the rate path.

The 10-year yield slipped two basis points to 4.18%, approaching its mid-January lows. The more policy-sensitive two-year yield fell one basis point, reinforcing a bull-flattening move in which long-dated notes outperform shorter maturities.

The shift in yields reflects changing expectations. A week ago, markets were pricing in two Fed rate cuts this year; now, the probability of three quarter-point cuts has climbed to 25%, supported by softer economic signals and hopes for continued cooling in inflation.

Economists expect retail sales to slow to 0.4% in December from 0.6% the previous month. The employment cost index is projected to hold at 0.8% quarter-over-quarter. Both releases come ahead of the rescheduled January jobs report, delayed after the recent government shutdown.

Meanwhile, the U.S. Treasury is preparing to sell $58 billion in three-year notes — the first leg of a broader auction cycle that also includes new 10-year and 30-year issuance. Institutional investors are watching demand closely, as auction results could influence movements along the yield curve.

Additional attention is focused on upcoming remarks from Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan. Both are viewed as part of the central bank’s “hawkish” wing and hold voting seats this year. Their comments may offer clues on how prepared the Fed is to begin easing policy in the coming months.

For now, markets expect yields to remain under pressure as long as inflation stays free of major upside surprises. Swaps show investors are almost certain the Fed will keep rates unchanged at its next meeting, as it did previously – maintaining the target range at 3.5–3.75%.