3 days Ago By Alice Gledhill, Bloomberg
US Treasuries fell, snapping three days of gains, as traders pared bets on Federal Reserve interest-rate cuts after Chair Jerome Powell reiterated his commitment to keeping inflation in check. Yields rose across the curve, reversing much of Wednesday’s gains and sending the benchmark 10-year rate to 4.30%.
Signs of progress in trade talks between the US and Japan boosted global risk appetite Thursday, adding to the weakness in Treasuries. Powell stressed on Wednesday the central bank must ensure tariffs don’t trigger a more persistent rise in prices, a reminder that policymakers remain highly vigilant to the inflationary threat. While Treasuries gained following his speech, the move coincided with a selloff in stocks, and on Thursday markets focused on the hawkish tone of the remarks.
“Powell delivered the clearest message since ‘Liberation Day” yesterday, which was unquestionably hawkish,” ING Bank strategist Francesco Pesole wrote in a note. “Powell said he expects higher inflation and a weaker jobs market due to tariffs, but that the Fed is primarily focused on the inflation aspect.” The belly of the US curve led the drop, with the five-year yield rising as much as six basis points to 3.
96%, before paring the move. The two-year yield rose as much as five basis points to 3.82%.
US President Donald Trump has repeatedly made clear that he wants the Fed — which is independent from the White House — to lower borrowing costs. He voiced his frustration again Thursday in a Truth Social post, writing that Powell’s termination can’t come quickly enough and that the central bank should have cuts rates already. Money markets are pricing around 88 basis points of cuts from the Fed this year, three basis points less than Wednesday and equivalent to three quarter-point cuts and around a 50% chance of a fourth.
The next driver for US bonds will be jobless claims data later on Thursday, which are due for the week ended April 12. Bloomberg Economics expects those figures to remain relatively low for now. “The combination of rising prices and stalling growth will probably mean that the Fed feels that it can do nothing in terms of monetary policy, noting Powell has an eye on his legacy,” Mark Dowding, chief investment officer at RBC BlueBay Asset Management wrote in a note on Thursday.
Dowding expects US inflation to head to 4% as tariffs bite, a trend that will be exacerbated by a weaker US dollar. This week’s moves in US Treasuries are offering some comfort that the securities are starting to re-assume their haven qualities, at least for now. Last week, bonds and equities sold off in tandem as Trump’s global tariffs saw investors dump the nation’s assets.
“It’s at least reassuring that Treasuries traded as they ‘should’,” said Michael Brown, senior research strategist at Pepperstone, adding Wednesday’s gains were led by haven demand. “While I think there could be further downside in store given the general lack of enthusiasm to hold US assets right now, yesterday’s move will at least allay some concerns over the dislocations seen last week,” he added..
