Michael Mackenzie and Greg Ritchie
4 min read
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(Bloomberg) -- US Treasuries closed out a third-straight positive week in a rally fueled by bets the Federal Reserve is ramping up to cut rates at least twice this year.
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The Bloomberg US Treasury index posted a 0.8% return for the week in its best run since early April. It’s now on track for its biggest monthly gain since February.
The advance has been driven by several economic data points that reinforced rate-cut wagers and by speculation President Donald Trump will name a more dovish Fed chief. Fed officials Christopher Waller and Michelle Bowman have also signaled in recent days they’d be open to lowering rates as soon as the next meeting.
“The market really got excited on the Fed dove narrative,” said Gregory Peters, co-chief investment officer at PGIM Fixed Income. That now “puts data more at the fore.”
The gains for the week came even after the bonds slipped on Friday. Yields on maturities across the curve rose following the release of economic data that pointed to firmer-than-expected inflation.
“The market overshot a bit based on Waller and Bowman language and now we’re taking some of this risk off into the weekend,” said Ed Al-Hussainy, rates strategist at Columbia Threadneedle Investment.
A Bloomberg gauge of the dollar separately rallied to the day’s high on Friday after Trump said he would be cutting off all trade talks with Canada and threatened to impose a new tariff rate. Canadian government debt jumped on the news, outpacing developed market peers.
The market could well find further support from supply-and-demand factors including Monday’s month-end index rebalancing, which has the potential to drive buying, and from a gap in the coupon auction calendar until July 8.
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Traders are also fully pricing in two rate cuts this year, with the first coming in September. They currently see a less than one in five chance of a July rate cut, but will focus on plenty of fresh data next week, topped by the June employment report.
That data is released Thursday ahead of the July 4 holiday. Job creation is forecast to ease to 120,000, down from 139,000 the prior month, according to economists surveyed by Bloomberg. The unemployment rate is seen nudging up to 4.3%, and while still contained, such an reading would mark a fresh peak since 2021.
