TREASURIES-US yields steady as markets digest 1st Fed rate cut since 2024

By Matt Tracy

WASHINGTON, Sept 22 (Reuters) - U.S. Treasury yields were little changed on Monday as the market appeared to have settled down following the Federal Reserve's first interest rate cut last week since December 2024.

Yields rose last week despite the U.S. central bank's 25 basis-point (bp) rate cut and its signal for more easing at future meetings. The climb was reinforced by stronger-than-expected U.S. unemployment data and generally upbeat mid-Atlantic manufacturing activity.

However, yields remained largely level at midday as the market appeared to have fully digested the Fed cut.

The benchmark U.S. 10-year Treasury note yield US10YT=TWEB was flat at 4.135% from Friday's close, after hitting a two-week high of 4.145% last week.

The 30-year bond yield US30YT=TWEB was also little changed at 4.755%. It has gained for four consecutive trading sessions.

The two-year US2YT=RR yield, which typically reflects interest rate expectations, was up one basis point from Friday's close at 3.592%.

"There's a little bit of hangover from the Fed meeting," said Tom di Galoma, head of fixed income trading at Mischler Financial. "It's almost like the U.S. market hasn't really opened all that much."

A closely watched part of the U.S. Treasury yield curve measuring the gap between two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was last at 54.1 bps.

Markets are pricing in a 90% chance of a 25 bp cut at the Fed's October meeting, and 10% odds of a pause. U.S. rate futures have also priced in 44 bps worth of cuts through the end of the year, according to LSEG data.

"There's a lot of complacency on what the Fed will do (at its remaining 2025 meetings)," di Galoma said. "I don't think anyone is thinking they're going to do a tremendous amount between now and then."

New Fed Governor Stephen Miran, the sole dissenter at last week's meeting in favor of steeper rate cuts, repeated his sentiments on Monday.

However, three Fed presidents remained cautious in their remarks on Monday.

St. Louis Fed President Alberto Musalem said he saw little room for further rate cuts, while Atlanta Fed President Raphael Bostic said the same in an interview with the Wall Street Journal. Cleveland Fed President Beth Hammack noted that the Fed should use caution when assessing whether to cut rates further at its October and December meetings.

The next major economic data will come early Tuesday with the S&P U.S. price services and manufacturing index figures. The market is also awaiting the U.S. employment report on October 3 for any potential upside surprises that could strengthen the hawkish case for no rate cuts.

"Almost every investor right now is asking the question, 'What if the payroll number goes negative next month?'" said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. "I think the more surprising development would be if you see payrolls recover."

The Treasury Department is scheduled to auction $69 billion in two-year notes, $70 billion in five-year notes and $44 billion in seven-year notes later this week.