TREASURIES-US Treasury yields mixed as traders anticipate Fed policy

By Karen Brettell

NEW YORK, Feb 19 (Reuters) - U.S. Treasury yields were mixed on Thursday and held near the lower end of their recent range as traders evaluated likely Federal Reserve policy, while the Treasury Department sold $9 billion in 30-year inflation-linked debt to strong demand.

Treasury yields have traded in an expanding range in recent weeks as traders gauge the strength of the economy and when the U.S. central bank is likely to resume interest rate cuts.

Michael Lorizio, head of U.S. rates and mortgage trading at Manulife Investment Management, said yields expanded the upside of the recent range on expectations that growth will be much larger than previously forecast. But yields fell again to set a lower end of the range as these expectations faded.

“The upside potential and the range of potential outcomes overall for the economy are more contained than we had thought a few weeks ago. And I think that's basically why we've seen this 4.20% resistance level become a support level, and then 4.10% gradually become a support level now,” Lorizio said.

LOWEST SINCE NOVEMBER 28

The yield on benchmark U.S. 10-year notes US10YT=RR was last down 0.4 basis points at 4.077%. It reached 4.018% on Tuesday, the lowest since November 28, after getting as high as 4.313% on January 20.

The 2-year note US2YT=RR yield, which typically moves in step with Fed interest rate expectations, rose 0.8 basis points to 3.468%, from 3.46% late on Wednesday. It fell to a four-month low of 3.385% on Tuesday.

The yield curve between two- and 10-year notes US2US10=TWEB flattened by around a basis point to 60.5 basis points.

Minutes from the Fed’s January 27-28 meeting released on Wednesday were more hawkish than expected, with several policymakers open to rate hikes if inflation remains elevated.

“Yesterday's minutes introduced at least the potential that some of the more hawkish members of the committee wanted that to be recognized, that there's risk both ways in the near term for the path of the Fed funds rate,” said Lorizio.

Data on Thursday showed that the number of Americans filing new applications for unemployment benefits fell more than expected last week, consistent with a stabilizing labor market.

The U.S. trade deficit, meanwhile, widened sharply in December after a surge in imports, and the goods shortfall in 2025 was the highest on record.

Personal consumption expenditures data for December due on Friday is the next major economic release.

The Treasury saw strong demand for a sale of 30-year Treasury Inflation-Protected Securities on Thursday.

The debt sold at a high yield of 2.473%, around 2 basis points below where it traded before the auction. Demand was 2.75 times the amount of debt on offer.

A $16 billion 20-year bond sale on Wednesday drew only soft demand.

Traders are also watching nuclear discussions between the United States and Iran.

President Donald Trump warned Iran on Thursday that it must reach a deal over its nuclear program or "bad things" will happen, and appeared to set a 10-day deadline before the U.S. might take action.