U.S. Treasury yields held high on Monday as Investors focused on Wednesday’s looming Fed policy meeting. The 10-year yield remained three basis points higher at 4.351%, while the 2-year yield moved to 3.843%.
Investors expect a rate cut on Wednesday, with the CME FedWatch tool data showing an above-96 % probability of a 25-basis-point cut and a 34.5% chance of a 50-basis-point cut. Treasury yields reveal market sentiment, and their steady nature suggests optimism.
10-year Treasury yield rises ahead of the Fed policy meeting
The US 10-year Treasury note rose by three basis points to 4.37% on Tuesday, marking its highest level. Investors monitor trade tensions closely as they await the FOMC meeting decision tomorrow.
The Fed is expected to cut the rates to slow inflation and improve the economy. Markets are watching for any signal regarding future policy direction and the central bank’s assessment of President Donald Trump’s economic impact on trade policies.
Trade negotiations between Asian countries and the U.S are expected to return this week. The ISM services report showed a sharp expansion in activity and cost pressures, confirming the strength viewed in last week’s jobs report.
Market is engaged even as trading slows down towards Labor Day due to the upcoming Treasury auctions, including $70 billion in five-year notes. The potential Fed rate cuts revealed a shift in monetary policy from fighting inflation to boosting the economy. The move reflects global trends where central banks are focusing on economic stimulation.
Official government data revealed a minimal impact on gross domestic product growth. First quarter figures showed the effect of companies rushing to import goods ahead of expected levies placed by President Donald Trump.
Soft data, such as consumer and business sentiment, has plummeted sharply compared to the complex economic data, which greatly reflects the impact of tariffs. The Fed is in a wait-and-see mode, with asset prices and investor expectations for monetary policy fluctuating daily without the real outlook data.
Source: Statista
Fed expected to cut rates amidst Trump’s pressure on Powell to reduce interest rates
The FOMC meeting comes ahead of Trump’s attempts to pressure the Fed to lower rates. The US president has challenged the Central Bank’s independence from the executive branch, with the White House possibly firing Powell at some point.
The President attacked the Fed Chair when markets fell last month, saying he could fire him. He added that Powell would seek to challenge the central bank’s political independence and undermine inflation-fighting credibility.
The President of the U.S. backed off the threats after stock prices recovered; however, his administration has continued to pressure the central bank to ease policy. Scott Bessent, the Treasury Secretary, revealed that last month’s drop in Treasury yields signaled to the market that the Fed would not lower rates fast enough despite Trump’s pressure.
When Trump flagged the employment data on Friday, he said the inflation fears are misplaced. Powell and other policymakers have emphasized that they are in no rush to react as inflation exceeds their 2% target.
China revealed on Friday that it’s looking into the possibility of beginning trade talks with the U.S. A statement from the country’s commerce ministry showed that U.S officials reached out through relevant parties several times to start tariff negotiations.
The statement also revealed that if the U.S was willing to talk, it should show sincerity and be prepared to correct the wrong practices seen earlier and cancel the unilateral tariffs.
Chinese authorities said failure to remove all unilateral tariffs would further compromise the mutual trust forged over the years between the two countries. China’s current retaliatory levy stands at 125% against the 145% slapped on them by the U.S.
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