Investors analyze U.S. Treasury yields amidst economic data scrutiny

The 10-year Treasury note yield increased on Tuesday, continuing its gains from the previous session, as traders reconsidered the possibility of the Federal Reserve cutting rates in June. The benchmark rate rose more than 3 basis points to 4.361%, reaching its highest level since November 28 and briefly breaking above 4.4%. Conversely, the 2-year Treasury note yield decreased nearly 3 basis points to 4.691%.

Yields and prices move in opposite directions, with one basis point equaling 0.01%. This latest movement in Treasury yields followed news that manufacturing in the U.S. expanded for the first time in 17 months. The Institute for Supply Management reported that the ISM manufacturing index rose to 50.3, up from 47.8 in February and surpassing the Dow Jones consensus estimate of 48.1. A reading above 50 indicates growth as it measures the percentage of companies reporting expansion against contraction.

Market odds for a June rate cut, as indicated by fed futures trading, have decreased to around 58.8% from about 70% a week ago. Investors are now more cautious about the direction of rate cuts in the future following the unexpected return of manufacturing growth in the U.S. Dutch bank ING noted that markets interpreted this growth as reducing the likelihood of significant Fed rate cuts.

Last month, the U.S. central bank left interest rates unchanged for the fifth consecutive time, as anticipated. The Fed maintained its benchmark overnight borrowing rate in a range of 5.25%-5.5% and reiterated its expectation of three quarter-percentage point cuts by the end of the year. Market pricing currently anticipates three rate cuts, with a slight inclination towards a June start date, depending on how economic data unfolds.

By Samantha Robertson

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