By David Randall
       NEW YORK, Jan 2 (Reuters) - U.S. Treasury yields popped
higher Tuesday on the first trading day of the new year as
traders lowered expectations for rate cuts in 2024. 
    Markets are pricing in that the Federal Reserve will cut
benchmark rates beginning in March by a total of 150 basis
points this year, down from expectations of more than 160 basis
points in cuts seen last week. 
    The jump in yields, which move in the opposite direction to
prices, was expected given the outsized rally in Treasuries over
November and December in response to signs that inflation was
cooling more than expected and the Federal Reserve was closer to
cutting rates, said David Albrycht, chief investment officer at
Newfleet Asset Management. 
    "Things may have gotten a little ahead of themselves,
whether it's equity valuations or expectations of Treasury rate
cuts," he said. "People have become really complacent that the
Fed is going to execute a soft landing but it's still not
clear." 
    The yield on 10-year Treasury notes was up 8.4
basis points at 3.944%, roughly 15 basis points above its
six-month low hit in December. The yield on the 30-year Treasury
bond was up 6.6 basis points at 4.084%. 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 7.2 basis
points at 4.322%. 
    Investors will be monitoring economic figures this week,
including jobs data on Friday that may influence whether the Fed
begins to cut rates in March as markets expect. The minutes from
the central bank's December policy meeting will be released
Wednesday.
    The New York Fed said on Tuesday that it had accepted $704.9
billion submitted to its overnight reverse repo facility on Jan.
2, well below the $1.018 trillion it accepted on the final
trading day of 2023. The Fed's reverse repo facility exists to
put a floor underneath short-term interest rates and has been
shrinking as the Fed continues to draw down liquidity.
    Futures markets see a nearly 70% chance of a 25 basis point
rate cut at the March 20 meeting, up from a 55% chance seen a
month ago, according to CME's FedWatch Tool. 
    Markets will likely be focusing on the upcoming labor market
data to gauge the next move in Treasuries, said Ian Lyngen, head
of U.S. rates strategy at BMO Capital Markets. 
    "We’re skeptical that anything on the near-term macro
horizon will materially alter the underlying tone favoring
higher yields," he said.
    
    
    January 2 Tuesday 2:08 p.m. New York / 1908 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             5.2275       5.381     0.030
 Six-month bills               5.045        5.2588    -0.003
 Two-year note                 99-220/256   4.3242    0.074
 Three-year note               100-198/256  4.0931    0.090
 Five-year note                99-62/256    3.9186    0.089
 Seven-year note               98-208/256   3.946     0.084
 10-year note                  104-128/256  3.9444    0.084
 20-year bond                  106-172/256  4.249     0.068
 30-year bond                  111-100/256  4.086     0.068
                                                      
 

 (Reporting by David Randall; editing by Barbara Lewis and
Tomasz Janowski)