TREASURIES-US bonds advance as investors look ahead to Fed cut, inflation data

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 21 (Reuters) - U.S. Treasuries firmed for a second straight session on Tuesday, pushing their yields lower and with not much catalyst moving the market for now, as investors continued to position for lower yields amid the prospect of multiple interest rate cuts by the Federal Reserve this year and next.

Ahead of the Federal Open Market Committee meeting next week, Fed officials are currently in a blackout period in which they are temporarily restricted from making public comments or speeches about monetary policy.

Bond investors will be looking to Friday's release of the Consumer Price Index (CPI) for September for clues on whether or not inflation remains under control. The consensus forecast for core CPI was 0.3%, unchanged from August.

The CPI data release has been delayed along with other economic indicators with the U.S. government's temporary shutdown.

"The Fed is on track to ease probably more than what people expected maybe a few months ago just because the job market has been softer than anticipated," said Vinny Bleau, director of fixed income capital markets at Raymond James in Memphis.

"I think the Fed's been pretty clear in communicating that. ... The big names at the Fed are kind of willing to look at tariffs just as a one-time effect, and focus instead on the labor market," Bleau added.

The Fed is expected to cut two more times this year, with a 25 basis-point (bp) cut baked in for the October meeting, according to LSEG calculations using rate futures. For 2026, the fed funds futures market has priced in three more cuts of 25-bp easing each.

In morning trading, the benchmark 10-year yield fell 3.3 bps to 3.955% US10YT=RR, while 30-year bond yields were down 3.7 bps to 4.542% US30YT=RR.

On the shorter end of the curve, U.S. two-year yields, which reflect interest rate expectations, slipped 2 bp to 3.445% US2YT=RR.

Moves in the Treasury market were also fairly contained in narrow ranges, with the federal government still shut for a 21st straight day, making it the second-longest shutdown along with the 1995-96 closure and only behind the most recent 35-day hiatus in 2018-19.

The yield curve, meanwhile, continued to bull flatten, with the spread between U.S. two-year and 10-year yields at 50.6 bps US2US10=TWEB, from 52.3 late Monday. The curve hit 50 bps, the flattest since September 17, suggesting possibly that investors have lowered their inflation expectations.

A bull flattening curve refers to a scenario in which long-term rates are falling more quickly than those on the short end of the curve, and typically precedes the Fed cutting interest rates.