The yields on bonds were unchanged to slightly lower Monday morning, one day before testimony by Jerome Powell (Federal Reserve Chair) and important jobs data later in week.
What's the latest?
On Friday, the yield on TMUBMUSD02Y's 2-year Treasury note TMUBMUSD02Y was 4.876%. This is an increase of 4.859% from Friday. Spread between 10-year and 2-year yields was minus 92%, which is the lowest level since October 1981.
What is driving the markets?
After reaching oversold conditions for much of February, the benchmark 10-year Treasury yields fell to 3.9% on Monday. This is causing price action to shift in the opposite direction.
Yields had risen sharply last month after stronger-than-forecast economic data raised fears the Federal Reserve may have to hike interest rates more than expected in order to dampen inflation still running at more than three times the central bank's 2% target.
In the coming sessions, fixed-income markets will be subject to Powell's semiannual congressional testimony Tuesday and Wednesday and February's nonfarm payrolls reports Friday.
Markets are pricing in a 69.4% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5% on March 22, according to the CME FedWatch tool. In addition, there's a 30.6% chance seen of a bigger, 50-basis-point hike instead.
The central bank is mostly expected to take its fed-funds rate target to at least between 5.25% and 5.5% by November, according to 30-day fed-funds futures.
Economic data released on Monday showed that U.S. factory orders declined 1.6% in January.
What analysts are saying
"Following another week with large fluctuations in core [bonds], short term positions are trying to figure out a new level to work on, but we believe some volatility may persist in system, as soft data from the U.S. continues its overperformance of the rest of G-10," said Luis E. Costa, strategist at Citi.
"It's going to be a tough week in terms of economic information, ending with Friday's NFP number. The Citi team advised that they should "buckle up" in reference to the February nonfarm payrolls report.