(Bloomberg) — Treasuries fell to wrap up a volatile week as mixed economic data kept investors on edge ahead of a key speech from Jerome Powell that may offer clues on the Federal Reserve’s next steps.
The selloff lifted 10-year yields to 4.32% on Friday, slightly above last week’s levels. The dollar slipped and traders held to bets on a September rate cut while shifting focus to the Fed symposium in Jackson Hole, Wyoming, where Powell is set to deliver an address.
A week that included conflicting reports on retail sales, consumer sentiment, and inflation — as well as White House calls for lower interest rates — ended with a pivotal meeting between presidents Donald Trump and Vladimir Putin. It added up to a choppy run for Treasuries.
“The market took a sharp turn on Thursday after the producer price index surprised dramatically to the upside,” Nancy Vanden Houten, lead US economist at Oxford Economics, wrote. “Treasuries added to those losses on Friday, on stronger than expected data on import prices and a consumer sentiment survey showing rising inflation expectations among households.”
Futures imply a roughly 80% chance of a quarter-point rate cut at the Fed’s September meeting. If Powell offers no clear signal, investors will look to upcoming economic data for confirmation, said Gregory Faranello, head of US rates trading and strategy at AmeriVet Securities.
A weak jobs report, set to be released in early September, would solidify bets on a 25-basis-point reduction, he said.
The moves on Friday pushed the gap between five- and 30-year Treasury yields to its widest level since 2021.
It tracked a similar selloff in European government bonds, with the rate on 30-year German note rising to a 14-year high. The yield is up 14 basis points this week, the largest jump since the nation’s historic investment plan in March sent rates higher across the region.
The selloff in Europe may have been exacerbated by public holidays in many countries worsening already thin August liquidity. There’s also continued focus on increased fiscal spending across the region and reduced demand for long-dated assets due to Dutch pension reforms.
Earlier this week, a benign reading on consumer prices and White House pressure for Fed rate cuts spurred a rally, only for a bigger-than-expected jump in producer prices on Thursday to prompt a reassessment.
Treasury Secretary Scott Bessent suggested that the central bank should cut rates by 50 basis points next month.
Traders are still fully pricing in at least two, quarter-point reductions by the end of the year.
“A move of 25 basis points in September followed by similarly sized cuts in the following couple of quarters appears like a reasonable baseline assessment of the likely path for US rates,” Mark Dowding, chief investment officer of the BlueBay Fixed Income unit at RBC Global Asset Management, wrote in a note.
What Bloomberg Strategists say…
“Benchmark yields have been trading in a zone from 4.18% to 4.32% since the July nonfarm payrolls led to a lower rate regime. The range trade can persist, with Friday’s swath of economic data confirming Federal Reserve officials will likely need to gather more data before solidifying a view for the September FOMC meeting.”
—Alyce Andres, US FX/Rates Strategist, Markets Live
For the full analysis, click here.
While some traders have piled into bets that would benefit from an outsize, 50-basis-point move, Myles Bradshaw, head of global aggregate strategies at JPMorgan Asset Management, said that such a move would hinge on the next monthly jobs report.
“There is a chance we get 50 and it’s going to be that roulette wheel of the next payrolls report,” Bradshaw said on Bloomberg TV. “If that is showing zero payrolls growth, then 50 basis points is on the table.”
–With assistance from Alice Atkins.
(Recasts with updated prices and context.)
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