US Treasuries slipped as Federal Reserve Chair Jerome Powell told Washington lawmakers he wants more evidence of cooling inflation, bolstering the market’s existing bets on interest-rate cuts this year.
The decline in US government bonds pushed yield higher as Powell testified for a Senate hearing on Tuesday, with the benchmark 10-year’s up almost five basis points to 4.325%. Swaps traders held tight to their expectations for two rate reductions this year, with just over a 70% probability that the Fed cut comes in September.
“Powell’s comments are balanced and policy decisions will be made ‘meeting by meeting,’” said Subadra Rajappa, head of US rates strategy at Societe Generale. “The market continues to expect a September rate cut, but it’s not set in stone. A sticky inflation print could easily tilt the probabilities.”
As part of his two day semi-annual presentation to Senate Banking Committee on the economy and policy, Powell said the Fed is looking for “more good data” to strengthen its confidence that inflation will return to target. He also said the labor market appeared to be “fully back in balance,” and that policymakers were aware that they face risks tied to both cutting rates too soon or too late.
Traders will get more information on US inflation later this week, when a reading of the consumer price index for June is released on Thursday.
Treasury yields are also higher as dealers prepare for auctions this week, according to Guy LeBas, chief fixed income strategist for Janney Montgomery Scott. The government will sell $58 billion worth of three-year notes later on Tuesday, followed by $39 billion of 10-year notes on Wednesday and $22 billion of 30-year bonds on Thursday.
Powell’s comments in Washington at the US Senate will be followed on Wednesday by an appearance to House panel.
— By Liz Capo McCormick (Bloomberg)
