Improving risk appetite reduces demand for Treasuries
Trump to decide on Iran response in next two weeks
Fed’s Waller says bank should consider cutting rates
June 20 – Longer-dated U.S. Treasury yields rose on Friday as stock markets rallied, reducing safe-haven demand for the bonds, and after Federal Reserve Chair Jerome Powell on Wednesday said policymakers expect inflation to rise over the summer. Stocks climbed after the White House said on Thursday that President Donald Trump would decide on potential U.S. involvement in the Israel-Iran conflict in the next two weeks, citing possible negotiations involving Iran soon. Iran said on Friday it would not discuss the future of its nuclear program while under attack by Israel, as Europe tried to coax Tehran back into negotiations.
“There’s a bit of a risk-on trade going on, meaning people aren’t really piling into Treasuries,” said Tom di Galoma, managing director at Mischler Financial Group.
U.S. government debt is catching up to yield increases on Thursday in European bonds, di Galoma said. U.S. markets were closed on Thursday for the federal Juneteenth holiday.
The yield on benchmark U.S. 10-year notes was last up 1.6 basis points at 4.411%. The interest-rate-sensitive 2-year note yield fell 0.2 basis points to 3.939%.
The yield curve between 2-year and 10-year notes steepened by around 2 basis points to 48 basis points.
Yields edged higher after comments from Fed’s Powell at the conclusion of the U.S. central bank’s two-day meeting on Wednesday were interpreted as slightly hawkish. The Fed held interest rates steady and policymakers signaled borrowing costs are still likely to fall in 2025. But Powell cautioned against putting too much weight on that view, and said he expects “meaningful” inflation ahead as consumers pay more for goods due to the Trump administration’s planned import tariffs.
“Market reaction suggests a slightly hawkish read for the June FOMC,” Bank of America credit strategists Yuri Seliger and Sohyun Marie Lee said in a report, referring to the Federal Open Market Committee. “However, the bigger picture is that the FOMC meetings had little market impact this year, and the June meeting was no exception.”
Fed funds futures traders are pricing in 49 basis points of cuts by December, indicating they continue to see two 25-basis-point rate reductions as most likely. Fed Governor Chris Waller said on Friday the U.S. central bank should consider cutting interest rates at its next meeting, given recent tame inflation data and the fact that any price shock from import tariffs will be short-lived.
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