US Treasury yields fell on Monday on investor speculation that the Federal Reserve will soon stop raising interest rates, though the market faces a hawkish Fed that points to inflation actually slow down before it can turn around its monetary stance.

* Fed Chairman Jerome Powell may insist when he speaks on Tuesday that more time is needed to show inflation is under control. But Thursday’s consumer price data could reinforce the market’s view that inflation is on track towards the 2% target.

* Data on Friday showed U.S. services activity contracted for the first time in more than two and a half years in December, giving bonds and stocks the green light to recover after labor market data showed that wage growth increased less than expected.

* “It’s a tug-of-war between markets that don’t think the Fed can tighten monetary policy and stay there for an extended period of time against expectations of weaker inflation and weaker economic data allowing the Fed to loosen up somewhere.” time later this year,” said Andrzej Skiba, head of the BlueBay US fixed income team at RBC Global Asset Management in New York.

* But markets may have moved too fast and too far, as the 10-year Treasury yield is below 3.6% and the Fed indicates the terminal rate will be above 5%, Skiba said. “You could argue that a lot of good news on that front has been priced in.”

* The 10-year return fell 4.4 basis points to 3.527%, and the two-year return, which often reflects interest rate expectations, fell 4.8 basis points to 4.212%. Yields are traded inversely to their price.

* A closely watched portion of the yield curve that measures the gap between the three-month bill rate and the benchmark 10-year note inverted further to a record -136.10. Then it was trading at -109.5 basis points.

* The yield on the 30-year Treasury note fell 2.6 basis points to 3.666%.

* The Treasury will sell $90 billion in debt this week, starting with $40 billion of three-year notes on Tuesday. On Wednesday it will auction 32,000 million in 10-year notes and on Thursday 18,000 million in 30-year bonds.

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