(Bloomberg) -- Treasuries are headed for their biggest two-day loss in months as strong economic data reinforced the message of Federal Reserve officials including Chair Jerome Powell that interest-rate cuts are unlikely to begin before May. 

Yields climbed at least 10 basis points — the five-year as much as 15 basis points to a year-to-date high 4.13% — after the ISM gauge of service-sector activity for January exceeded economist estimates. Friday was the US bond market’s worst day in nearly a year, with two- and five-year yields rising more than than 15 basis points after strong January employment data dashed hopes for a speedy pivot toward easier monetary policy.

The yield increases since Thursday are the biggest over a two-day period in months, at least. For the benchmark 10-year note, higher by about 27 basis points, it’s the most since June 2022, when it became clear the Fed was on the brink of a faster pace of interest-rate hikes. Aimed to throttle inflation, those hikes brought the federal funds target range to a two-decade high that Fed officials have signaled is unlikely to be sustained this year, without committing to a timeline for lowering it. 

The market-implied odds of a quarter-point cut in March dwindled to almost 10%. Powell, in an interview with CBS’s 60 Minutes which aired Sunday, reiterated his Jan. 31 comment that the Fed’s next policy meeting in March is probably too soon to cut rates. Minneapolis Fed President Neel Kashkari made similar comments Monday, and nine other central bank officials are slated to speak this week.

The ISM report — which included an unexpected jump in a gauge of prices paid by companies in the service sector for materials — “just further reinforced the message from Powell that it’s unlikely we’ll see a March rate cut,” said Ian Lyngen, head of interest-rate strategy at BMO Capital Markets. Anticipation of this week’s Treasury note and bond auctions over the next three days was putting additional upward pressure on yields, he said. 

Monthly auctions of three- and 10-year notes and 30-year bonds totaling $121 billion are scheduled, and in the corporate bond market, Morgan Stanley led a slate of 10 offerings Monday to begin a week expected to bring $25 billion to $30 billion.

Just four weeks ago, a March rate cut was considered a near certainty by investors, but Powell last week and again Sunday said officials are looking for more economic data to confirm that inflation is headed down to their 2% target. Annual consumer price growth accelerated slightly to 3.4% in December.

Kashkari, in an essay published on the Minneapolis Fed’s website Monday, said the economy may be able to withstand higher interest rates than in the past, lessening the risk of waiting to cut interest rates.

Those comments were also a factor for the market on Monday, said Zachary Griffiths, senior fixed-income strategist at CreditSights. 

Combined with the latest economic data, “this all suggests maybe all the optimism regarding disinflation may have gone too far.”

For months, traders have been piling into bets for early decreases, but with policymakers increasingly wary of declaring victory over inflation it’s setting the market up for a sharp reversal. Goldman Sachs Group Inc., Bank of America Corp. and Barclays Plc are among Wall Street banks that last week pushed back their calls for the timing of the first Fed rate cut from March. 

European bonds yields also climbed, with UK and most euro-zone two-year yields higher by at least four basis points on the day, 10-year yields by at least seven basis points.

Traders are betting on five quarter-point reductions from the European Central Bank this year, down from nearly seven expected a couple of months ago. The Bank of England is only expected to lower policy rates three times compared to as many as six late last year. 

--With assistance from James Hirai and Constantine Courcoulas.

(Updates yield levels.)

©2024 Bloomberg L.P.