Treasuries joined most other government bond markets in sending long-term yields lower as trade tensions continue to stoke haven demand.
Ten-to 30-year yields reached session lows during the US morning, led by bigger yield declines in most European government bond markets. Those were spurred in part by reports that the European Commission is set to announce a provisional list of tariffs against the US on Thursday. US short-term yields, meanwhile, pared their increases ahead of Wednesday’s US Federal Reserve (US Fed) interest-rate decision.
The US 30-year yield declined as much as four basis points to 4.76%, its lowest level this week. The two-year pared about half of an increase of as much as four basis points. The shrinking gaps between short- and longer-term yields were larger in most European bond markets than in the US.
While US central bank policymakers are expected to leave their target range for the federal funds rate unchanged at 4.25% to 4.5% in the decision to be announced at 2 pm in Washington, US Fed chair Jerome Powell in a news conference 30 minutes later may shed light on the outlook for rate cuts. Their quarterly forecasts published in March showed a median expectation for two quarter-point reductions by year-end, while derivative markets are pricing in roughly three.
The US Fed meeting will “likely shape expectations more than usual as it is the first decision after the reciprocal tariff announcement,” said Erik Liem, a rates strategist at Commerzbank. “Verbal guidance will be key, as markets have postponed expectations” for monetary easing, he said.
US President Donald Trump’s April 2 unveiling of protectionist agenda led economists to forecast slower economic growth and higher inflation in coming quarters.
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Still, expectations for US Fed policy have been volatile in response to mixed US economic data, and central bank officials have said there’s no urgency to cut rates.
For investors, it’s a question of how to weigh the economic pessimism that has been seen in some recent surveys against the resilience in top-tier measures of employment. While US consumer confidence fell in April to an almost five-year low, job creation exceeded all economist forecasts compiled by Bloomberg.
Open-interest data point to de-leveraging and position unwinds in short-term interest-rate products after the jobs were released Friday, consistent with liquidation of long positions. JP Morgan’s weekly treasury client survey released Tuesday found neutral positions remain elevated and close to yearly highs.
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Notable treasury options activity Wednesday morning session included buying of put options on five-year note futures, targeting yields in the sector to climb around 28 basis points by Monday.
“It’s still tough, in my view, to have an especially high conviction call in terms of Treasuries right now,” said Michael Brown, a strategist at Pepperstone. “It remains to be seen which side of the fence bond market participants come down on in terms of the macro impact of tariffs, with downside growth, and upside inflation risks almost as prevalent as each other.”
Long-term treasuries also have support from strong demand for Tuesday’s auction of new 10-year notes. An auction of new 30-year bonds is set for Thursday.
