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Treasuries Rise As Stocks Jitters and Rate Bets Fuel Rally

(Bloomberg) -- Treasuries rose on Tuesday as investors bet on the Federal Reserve cutting interest rates at least twice this year and jitters over global technology shares boosted demand for safer assets.

With the US bond market reopening after a holiday, benchmark 10-year yields slipped three basis points to 4.02%, the lowest in almost three months, while two-year Treasuries approached a new 2022 low.

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The moves come after a strong end to last week, when wagers grew that slowing inflation would drive rate cuts and propelled Treasuries to their biggest weekly gain in months.

Last week’s softer US inflation data and quant funds deleveraging in equities are driving the bid for bonds, said Prashant Newnaha, senior strategist at TD Securities in Singapore.

“Technically 4% on US 10-year is setting up as a make or break level. Expect a sharp rally if this level is broken,” he said.

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Traders are on the lookout this week for further data on the US job market and minutes from the Fed’s January meeting to glean more insight into the timing for any interest-rate cut.

The latest indication on the economy’s health comes at 8:15 EST, with the ADP private payrolls data. Investors will be watching for any signs of job market overheating which could temper the market’s bullish rate cut expectations, with 63 basis points currently priced for 2026.

“We think the labor market is still generally on a softer trend but the recent data has been quite encouraging,” Kamakshya Trivedi, chief FX strategist at Goldman Sachs Group Inc., told Bloomberg TV.

While Trivedi expects the US inflation picture to remain benign, others remain concerned about price pressures. Benoit Anne, managing director at MFS Investment Management said the US economy looks robust, yet this raises the risk of overheating.

Should the upcoming data releases indicate this is happening, the current rate pricing could well unwind, Anne said, triggering a potential “significant correction” in markets.