Longer-dated US yields slip ahead of labour data, Fed meeting

Longer-dated US Treasury yields were slightly lower on Monday, ahead of a week filled with labour market data releases and a Federal Reserve policy statement mid-week that investors will monitor for insight on the path of interest rates.

Labour market data this week begins on Tuesday with the release of the Job Openings and Labour Turnover Survey, or JOLTS report, and culminates with the key government payrolls report on Friday.

The Fed is scheduled to announce its next policy statement on July 31. Markets see only a slight chance for a rate cut of at least 25 basis points (bps) at that meeting, but are fully pricing in a September cut, according to CME's FedWatch Tool.

The yield on the benchmark US 10-year Treasury note fell to its lowest level since July 17 and after falling last week following data that showed US prices rose modestly in June, quieting concerns about a possible uptick in inflation.

"The market's finally getting comfortable with the fact that it's almost a certainty that we're going to get a cut in September," said John Luke Tyner, fixed income analyst at Aptus Capital Advisors in Fairhope, Alabama.

"September will definitely start the cutting cycle and now what the market's trying to figure out is are the projections moving forward for what the Fed's going to do - are they accurate or are they probably undercutting how many cuts could actually come."

The yield on 10-year Treasury notes was down 1.6 basis points to 4.184 per cent.

The yield on the 30-year Treasury bond declined 2.5 basis points to 4.432 per cent

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 21.8 basis points.

An inversion in this part of the yield curve is seen as a reliable precursor to a recession, though the length of the current inversion is longer than in prior periods. It has been negative since July 2022 and typically turns positive before an economic downturn sets in.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 0.9 basis point at 4.398 per cent.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.174 per cent, after closing at 2.157 per cent on July 26, its lowest close since mid-June.

The 10-year TIPS breakeven rate was last at 2.271 per cent, indicating the market sees inflation averaging 2.3 per cent a year for the next decade.