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US data mixed overall; marginal impact on Treasuries

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US rate futures price in two rate cuts in 2025

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Focus on Fed meeting, US seven-year note auction

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 28 (Reuters) - U.S. Treasury yields

rallied on Tuesday, recovering from multi-week declines in the

previous session as stocks stabilized following Monday's

bloodbath, as investors looked ahead to the Federal Reserve's

comments on Wednesday after its two-day policy meeting.

Shares on Wall Street rose, with the Nasdaq higher and

Nvidia ( NVDA ) up 0.9% after falling 16% on Monday amid the

emergence of DeepSeek's cheaper artificial intelligence

alternative. The bond market followed suit, with its own selloff

on Tuesday that pushed yields higher.

"U.S. rates rallied on that Chinese AI company and so we're

probably due for a selloff," said Tom di Galoma, managing

director & head of fixed income trading, at Curvature Securities

in Park City, Utah. "We got close to 4.51% on the 10-year yield.

I kind of see that the 10-year is going back to 4.75%."

In late morning trading, the benchmark 10-year Treasury

yield rose 4.3 basis points (bps) to 4.571% after

falling to a four-week low on Monday. Both 20-year

and 30-year bond yields also recovered from

four-week troughs as well.

On the front-end of the curve, the two-year yield, which is

typically tied to Federal Reserve policy expectations, edged up

2.2 bps to 4.218%. On Monday, the two-year yield

dropped to seven-week lows. The three-, five-, and seven-year

yields also rose from Monday's six-week lows.

Bond investors are now prepping for the Fed statement and

Fed Chair Jerome Powell's press briefing.

The Federal Open Market Committee is widely expected to keep

its benchmark overnight interest rate in the 4.25%-4.50% range

at the end of its two-day policy meeting. Powell will likely

strike a cautious tone in his post-meeting press conference and

keep the central bank's options open to allow policymakers time

to assess how President Donald Trump's administration will

reshape the fiscal landscape.

The U.S. rate futures market has priced in about 49 bps in

cuts this year, or two rate reductions of 25 bps each, amid the

tech meltdown, little changed from late on Monday, according to

LSEG calculations. The market had factored in just one rate

reduction all month until this week.

"The Fed is going to wait and see what happens in the new

administration," said di Galoma. "They want to save any bullets

they have for things that may come out."

U.S. economic reports on Tuesday, meanwhile, were mixed with

durable goods new orders falling 2.0% last month, well below

expectations and was the lowest since June.

U.S. consumer confidence also weakened, falling for a second

straight month in January amid renewed concerns about the labor

market and inflation. The Conference Board's consumer confidence

index fell to 104.1 this month from an upwardly revised 109.5 in

December.

U.S. home prices, on the other hand, were 0.3% higher in

November and up 4.2% in the 12 months through November using the

Federal Housing Finance Agency home price index.

Also on Tuesday, the U.S. Treasury is selling $44 billion in

seven-year notes and $30 billion in new issue two-year

floating-rate notes. Monday's sale saw mixed outcome, with

softer two-year note auction and a solid five-year note sale.

J.P. Morgan, in a research note, said with "yields levels

lower and both valuations and technicals mixed, we think

(that)...the 7-year auction will require more of a concession in

order to be digested smoothly."