U.S. Treasury Yields Hold Steady as Markets Await Fed Signals and Key Inflation Data

U.S. Treasury yields were broadly unchanged on Tuesday as investors returned from the Presidents’ Day holiday to a light trading session, with attention turning to Federal Reserve minutes and delayed economic data that could shape the near-term interest-rate outlook.

The benchmark 10-year Treasury yield dipped less than one basis point to 4.054%, while the 30-year bond yield eased 1 basis point to 4.689%. The policy-sensitive 2-year note yield rose 2 basis points to 3.43%. One basis point equals 0.01 percentage point, and yields move inversely to prices.

With liquidity thinner than usual at the start of the week, bond traders appeared reluctant to take large positions ahead of a series of potentially market-moving releases.

All Eyes on FOMC Minutes and PCE

The focal point for markets this week is the release of minutes from the Federal Open Market Committee (FOMC) meeting on Wednesday. Investors will scrutinize the document for clues about policymakers’ assessment of inflation, labor-market conditions, and the appropriate timing of future rate adjustments.

Particular attention will be paid to whether officials expressed concern about sticky services inflation or signaled growing confidence that price pressures are sustainably easing toward the Fed’s 2% target.

Friday’s release of December’s personal consumption expenditures (PCE) index — the Fed’s preferred inflation measure — is expected to be the week’s most consequential data point. Unlike the consumer price index (CPI), the PCE gauge adjusts for changes in consumer behavior and carries a heavier weighting in the Fed’s policy framework.

A softer-than-expected PCE reading could reinforce expectations for rate cuts later this year. Conversely, a firmer print may push back the timeline for easing and reprice short-term yields higher.

Housing data for November and December, due Wednesday, will also offer insight into how the sector is responding to elevated borrowing costs.

Market Pricing and Yield Curve Dynamics

According to the CME FedWatch Tool, traders are assigning roughly a 90% probability that the Federal Reserve will keep its benchmark rate unchanged within the 3.50%–3.75% range at its upcoming meeting.

Money markets are currently pricing in modest easing later in the year, but expectations remain data-dependent.

The slight uptick in the 2-year yield — the maturity most sensitive to shifts in monetary policy expectations — suggests investors are cautious about positioning too aggressively for imminent cuts.

Meanwhile, the spread between the 2-year and 10-year yields remains inverted, with the 2-year below the 10-year, reflecting expectations that policy rates may decline over the medium term as growth moderates. Yield-curve inversions have historically been viewed as recession indicators, though the lag between inversion and economic slowdown can be extended.

Macro Backdrop: Balancing Growth and Inflation

The Treasury market is navigating a complex macroeconomic environment. Inflation has moderated significantly from prior peaks, yet certain components — particularly services and wage growth — have shown resilience.

At the same time, growth indicators have delivered mixed signals. Consumer spending has held up better than expected in recent months, while business investment and housing activity have remained more subdued under the weight of higher financing costs.

This cross-current has kept longer-dated yields relatively range-bound. The 10-year yield near 4% reflects a balance between expectations of eventual policy easing and persistent concerns about structural inflation pressures, fiscal deficits, and elevated Treasury issuance.

Beyond monetary policy, investors are also watching the federal government’s borrowing needs. Elevated fiscal deficits require continued heavy issuance of Treasury securities, particularly at the long end of the curve. Increased supply can exert upward pressure on yields if demand does not keep pace.

Foreign demand for Treasuries, particularly from major holders such as Japan and China, is another factor influencing long-term yield stability. Any shifts in global reserve allocation or currency-hedging costs can affect cross-border flows into U.S. debt.

With the bond market closed on Monday and economic data compressed into the latter half of the week, trading volumes on Tuesday were subdued. However, analysts caution that volatility could rise sharply following Wednesday’s FOMC minutes and Friday’s PCE release.

For now, the Treasury market appears to be in a holding pattern, balancing expectations of eventual policy easing against persistent inflation risks and heavy government borrowing, awaiting clearer signals from incoming data and Federal Reserve communications.