(Bloomberg) — A rally in short-maturity Treasuries sparked by slumping consumer confidence re-started last year’s yield-curve steepening trend that had run aground this month.

The unexpected drop in the Conference Board’s gauge of consumer sentiment in January to the lowest level in more than a decade fortified the prospect of two Federal Reserve interest-rate cuts this year. Short-maturity Treasury yields declined in response, with the two-year note’s falling more than three basis points from its daily high.

For most of the past year, short-term Treasury yields were driven lower in anticipation of actual and anticipated Fed rate cuts. Longer-maturity tenors, anticipating inflation and increased borrowing, were stickier at higher levels. Differentials between two- and 10-year and between five- and 30-year yields reached the widest levels in years, rewarding traders with wagers on that outcome.

This month, however, shorter-maturity yields climbed in response to signs of improvement in the job market including a drop in the unemployment rate, and key yield differentials were driven back toward the low end of recent ranges.

Aided by strong demand for an auction on Monday, two-year yields reached levels more than 65 basis points lower than 10-year yields. And despite lackluster demand for Tuesday’s auction of five-year notes, rising 30-year yields widened the differential by nearly four basis points, the biggest increase in a day this year.

Fed policymakers are expected to leave rates unchanged Wednesday at the first of their eight meetings this year, following quarter-point cuts at each of the past three. However swap contracts fully price in another cut by July and most of another one by year-end.

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