TREASURIES-US yields drift higher ahead of Trump's speech to Congress

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 24 (Reuters) - U.S. Treasury yields were little changed to modestly higher on Tuesday, as investors continued to weigh the implications of the Supreme court ruling striking down President Donald Trump's use of emergency powers to impose tariffs and looked to his speech later for more clarity on the government's trade policy.

Trump will deliver the traditional State of the Union address to Congress on Tuesday, offering him a chance to persuade voters to keep Republicans in control of the U.S. House of Representatives and Senate in the midterm elections in November. The president also is expected to address the Supreme Court's decision last week on tariffs, arguing that the court erred and outlining alternative laws he can use to reinstate most of the import levies that were struck down.

"There could be some significant announcements and he's definitely going to address this trade issue," said Tom di Galoma, managing director of global rates trading at Mischler Financial.

Overall, he noted that there seems to be a "willingness from institutional investors to go long Treasuries because they feel that having this Supreme Court decision reversing tariffs puts Treasuries back in a lower yield environment."

In late morning trading, the benchmark 10-year yield was up a basis point (bp) at 4.037% US10YT=RR. On Monday, it hit the lowest level since late November.

U.S. 30-year yields were flat to slightly lower on the day at 4.687% US30YT=RR.

On the front end of the curve, the two-year yield, which reflects interest rate expectations, was up 2.1 bps at 3.461% US2YT=RR.

Later on Tuesday, the Treasury will auction $69 billion in U.S. two-year notes, unchanged in size from the last sale.

J.P. Morgan, in a research note, pointed out that the two-year note sale could be hard to digest, "given lower outright yields and a less supportive macro backdrop."

The last two-year note auction last month went smoothly, with end-user demand, which combines both indirect and direct bids, hitting the highest level since February 2025.

MIXED U.S. ECONOMIC DATA

In other pockets of the bond market, the yield curve flattened for a 10th straight session on Tuesday, with the spread between two-year and 10-year yields declining to 57 bps US2US10=TWEB, compared with 58.9 bps late on Monday.

The curve showed a bear flattening scenario, in which shorter-dated rates are rising faster than longer-term maturities. This situation likely reflects expectations that the Federal Reserve could continue the pause of its rate-cutting cycle as it looks to tamp down rising inflation.

U.S. fed funds futures on Tuesday priced in about 56 bps of easing this year, or about two rate cuts of 25 bps each. That expectation has been in place since the beginning of 2026. The first rate cut is not expected until July or September.

U.S. economic data, meanwhile, were mixed, with gains in single-family home prices slowing in December. House prices edged up 0.1% after an upwardly revised 0.7% increase in November, the Federal Housing Finance Agency said on Tuesday. House prices were previously reported to have advanced 0.6% in November.

Consumer confidence, on the other hand, rebounded more than expected in February amid an improvement in households' perceptions of the labor market.

The Conference Board said its consumer confidence index rose to 91.2 this month. Economists polled by Reuters had forecast the index would be at 87.0. Data for January was also revised higher to show the index at 89.0 instead of 84.5, which was the lowest level since May 2014.

Treasuries, however, showed little reaction to the U.S. numbers.