TREASURIES-US yields fall ahead of Fed decision, refunding

By Gertrude Chavez-Dreyfuss

NEW YORK, July 29 (Reuters) - U.S. Treasury yields slid across the board on Tuesday, reversing their rise in the previous session, following a less-than-stellar report on job openings for June and as market participants positioned ahead of Wednesday's Federal Reserve decision and a government announcement of its financing plans for this quarter.

In morning trading, the benchmark 10-year yield fell 6.4 basis points (bps) to 4.356% US10YT=RR, while U.S. 30-year yields dropped 7.1 bps to 4.894% US30YT=RR.

On the short end of the curve, the two-year yield, which reflects interest rate expectations, slipped 2.2 bps to 3.898% US2YT=RR.

Treasury yields on the long end of the curve extended their fall after data showed U.S. job openings and hiring decreased in June, with openings falling 275,000 to 7.437 million by the last day of the month, the Labor Department's Bureau of Labor Statistics said in its Job Openings and Labor Turnover Survey, or JOLTS report.

Economists polled by Reuters had forecast 7.50 million unfilled jobs.

Hiring also dropped, down 261,000 at 5.204 million in June, undermined by persistent uncertainty about where tariff levels will eventually settle that has left businesses hesitant to boost hiring.

"As the Fed meets they should take note of the drop in job openings and the fall in quits. The labor market was solid, but it is softening," said Brian Jacobsen, chief economist, at Annex Wealth Management, in Brookfield, Wisconsin. "Solid covers a wide spectrum. There’s no reason the Fed should flirt with a recession by digging in its heels on insisting everything is fine."

Another piece of data, on the other hand, showed that consumer confidence rose in July, with the index increasing 2.0 points to 97.2 this month. Economists polled by Reuters had forecast the index would increase to 95.0. The report briefly pushed two-year yields slightly higher.

But the market's focus overall was on two key events this week: the Fed decision and the Treasury's refunding announcement.

The Fed's policy-setting Federal Open Market Committee is broadly expected to keep its benchmark overnight interest rate in the 4.25%-4.50% range when its two-day meeting ends on Wednesday. Standing pat has been its default stance since December, given a surprisingly resilient economy that has seen a fairly stable labor market and generally subdued inflation.

But some investors said there's a chance that the Fed could modestly shift its stance to prepare the market for incoming rate cuts.

"I think there will be more discussions within the committee to lower rates," said David Norris, partner at TwentyFour Asset Management, and a member of the Multi-Sector Bond portfolio management team.

"I think there's room for rates to be lower than where they are. There's potential because we're getting more clarity on the impact of tariffs."

As for the Treasury's refunding, the department is widely anticipated to keep current auction sizes for notes and bonds for the next several quarters. Analysts said the Treasury can afford to delay increasing the auction sizes for longer-maturity debt given its focus on the issuance of more Treasury bills where demand has been robust. Treasury recently ramped up issuance of short-dated bills to replenish its cash balance, which has shrunk to about $300 billion.