10- and 30-year Treasury yields drop by most since March amid banking fears, decline in job openings

By Vivien Lou Chen

Most Treasury yields finished lower on Tuesday after March data showed U.S. job openings fell and as investors weighed the risks of additional banking-sector fallout.However, the 3-month T-bill rate touched its highest level in more than two decades on continued debt-ceiling worries ahead of Wednesday's policy decision from the Federal Reserve.

What happened

What drove markets

Six-month through 30-year Treasury yields dipped after U.S. economic data released on Tuesday showed U.S. job openings fell to 9.6 million in March from 10 million in the prior month -- a sign that the labor market is cooling off. In addition, factory orders were up 0.9% in March, yet came in below expectations for a 1.2% rise. Ongoing concerns about the regional-banking sector contributed to the drop in yields, as investors flocked to the safety of most government debt. Shares of PacWest Bancorp (PACW), Western Alliance Bancorp (WAL), and Metropolitan Bank Holding Corp. (MCB) all fell as JPMorgan Chase & Co.'s announced acquisition of First Republic Bank failed to shore up confidence in the U.S. banking system. Read:PacWest Bancorp, Western Alliance stocks post steep losses in wake of First Republic dealMeanwhile, investors avoided the 3-month Treasury bill after Treasury Secretary Janet Yellen said on Monday that the U.S. could breach its debt ceiling as soon as June 1 if Congress fails to raise the nation's borrowing limit. The rate on the 3-month Treasury bill jumped 17.6 basis points to 5.227% from Monday's close of 5.051% as of 3 p.m. Eastern time, according to Tradeweb. That's the highest level since January 2001.

See: Why it might take 'a stock-market meltdown' to resolve the debt-ceiling standoff

Ahead of the Federal Reserve's policy decision on Wednesday, markets were pricing in an 85% probability that the Fed will raise interest rates by another 25 basis points to a range of 5% to 5.25%, according to the CME FedWatch Tool. The central bank is also mostly expected to take its fed-funds rate target back down to between 4.25% and 4.5%, or even lower, by December, according to 30-day Fed Funds futures.

Australia's 2-year government yield surged 20.6 basis points to 3.272% after the Reserve Bank of Australia delivered a surprise 25-basis-point interest-rate hike and suggested there may be further monetary tightening to come.

What analysts are saying

"The Fed will be approaching tomorrow's meeting like an acrobat on a tightrope," said Dan Raju, chief executive of Tradier in Charlotte, N.C., an online brokerage which provides platforms for active traders.

"I expect the 10th interest rate hike of 0.25% to occur tomorrow, but I also believe that it's important to keep an eye on the indication they gave about pausing rate hikes in the future," Raju said in an email to MarketWatch. By going through with the anticipated quarter-of-a-percentage-point hike on Wednesday, "this still leaves them some room for another increase if need be."

-Vivien Lou Chen

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05-02-23 1556ET

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