(Bloomberg) — Treasuries were mixed, with most maturities tracking a slide in European bonds, while two-year debt headed for a slight weekly gain before a final set of US data caps a run of volatile trading.
The 30-year yield rose 1 basis points to 4.88% while the two-year yield slipped 1 basis point to 3.72%, steepening the yield curve ahead of readings on US retail sales, manufacturing and business sentiment later in the day.
The two-year rate headed for 4 basis points drop on the week after interest-rate cut speculation drove it to a three-month low on Thursday.
Treasuries have been whipsawed by US inflation data in recent days. A benign reading of CPI early in the week and White House pressure for Federal Reserve rate cuts spurred a rally, only for a bigger-than-expected jump in producer prices on Thursday to prompt a reassessment.
Traders are now pricing an almost 90% possibility that the Fed will reduce borrowing costs by 25 basis points in September. They trimmed bets after fully discounting such a cut earlier in the week, when Treasury Secretary Scott Bessent suggested that the central bank should cut rates by 50 basis points next month.
“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.
“That said, we think risks are tilted towards more aggressive policy action,” particularly if the next reports on payrolls and inflation indicate slowing growth and benign price risks, he added.
Markets are pricing a small possibility that the Fed will deliver more than 50 basis points of cuts by December. 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.
More stories like this are available on bloomberg.com
