Treasuries Extend Sell-Off Amid Fading March Rate Cut Hopes

(RTTNews) - Treasuries showed a substantial move to the downside during trading on Monday, extending the sell-off seen last Friday.

Bond prices moved sharply lower in morning trading and remained firmly negative throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, surged 13.1 basis points to 4.164 percent.

The ten-year yield added to the 17.0 basis point spike seen last Friday, offsetting the slump that had been seen throughout much of last week.

The extended sell-off by treasuries largely reflected fading optimism about the likelihood the Federal Reserve will cut interest rates in March.

Fed Chair Jerome Powell reiterated the central bank is unlikely to cut interest rates next month during an interview with "60 Minutes" on Sunday.

Powell suggested the strength of the U.S. economy even amidst elevated rates will allow the Fed to proceed carefully.

"With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully," Powell said.

"We want to see more evidence that inflation is moving sustainably down to 2 percent," He added. "Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates."

Following last week's Fed meeting and Powell's subsequent comments, the chances of a March rate cut have fallen to just a 14.5 percent, according to CME Group's FedWatch Tool.

Treasuries saw further downside as the Institute for Supply Management released a report showing U.S. service sector growth accelerated by more than expected in the month of January.

The ISM said its services PMI climbed to 53.4 in January from a downwardly revised 50.5 in December, with a reading above 50 indicating growth in the sector. Economists had expected the index to rise to 52.0 from the 50.6 originally reported for the previous month.

The report also said the prices index surged to 64.0 in January from 56.7 in December, indicating a substantial acceleration in the pace of price growth.

"The latest data releases, including both last Friday's solid jobs report and today's stronger-than-expected ISM Services PMI, will make the Fed more comfortable waiting a bit longer to start cutting short-term interest rates," said Bill Adams, Chief Economist for Comerica Bank.

Amid a light day in terms of U.S. economic data, trading on Tuesday may be impacted by reaction to remarks by several Fed officials.