Treasury yields slip as Fed Chair Powell highlights 'challenging situation' between inflation and job growth

U.S. Treasury yields declined on Tuesday after Federal Reserve Chair Jerome Powell emphasized the difficulty posed by balancing the state of employment in the U.S. economy and inflation.

The 10-year Treasury yield was more than 3 basis points lower at 4.112%. The 2-year Treasury yield was less than a basis point lower at 3.59%. The 30-year Treasury bond yield fell more than 3 basis points to 4.728%.

One basis point equals 0.01%, and yields and prices share an inverse relationship.

On Tuesday, Powell said during a speech to business leaders in Providence, R.I., that the situation between managing labor market weakness and tricky inflation was a "challenging" one.

"Near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation," he said during the speech. "Two-sided risks mean that there is no risk-free path."

One of the key economic updates expected this week is the personal consumption expenditures (PCE) index — the Federal Reserve's favored inflation measure — which should give a glimpse of inflationary pressures and the state of the broader U.S. economy.

Last week, the Fed delivered its first rate cut of the year, meeting market expectations by lowering its benchmark interest rate by a quarter-percentage point.

"Given there haven't been material data developments since last week's press conference, our US economists expect his tone to align closely with his remarks last week," Deutsche Bank's analysts said in a research note.

The Fed's "dovish shift" during the September assembly of the Federal Open Market Meeting Committee should be positive for interest rate markets over the next several months, said global asset manager Eastspring Investments in a note published Tuesday.