(Bloomberg) — Treasuries rose Friday and were on pace to eke out a small weekly gain after survey data showed signs of US economic cooling.
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Yields were lower by at the very least two basis points, with short maturities down nearly 4 basis points. Session lows were reached after an unexpected drop in S&P Global’s gauge of services activity and a downward revision to the University of Michigan’s sentiment gauge, each for January. The rally left Treasury yields barely lower on the week, which began with the inauguration of Donald Trump to a second non-consecutive presidential term.
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The information bolster the view that the Federal Reserve — which meets Jan. 28-29 — will cut rates of interest at the very least once this yr as early as June, after reductions at each of its last three meetings. Bonds also benefited from the shortage of immediate motion by Trump to impose tariffs on imports, though he said he intends to.
“With a data-dependent Fed, the market is hyper-focused on every economic release,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management. At the identical time, “politics will proceed to be a serious driver of volatility and uncertainty.”
Money markets and economists surveyed by Bloomberg are unanimous in expecting Fed Chair Jerome Powell and his colleagues to take care of their 4.25%-4.5% goal range for the US overnight rate of interest next week. Looking further ahead, rate swaps now favor two quarter-point reductions by year-end. Per week ago, only one was anticipated.
Bonds began selling off in September, pushing 10-year yields to a 14-month high of 4.8% earlier this month, reflecting concerns that trade protectionism may lead to inflation. Benign inflation data for December released Jan. 15 and Fed Governor Christopher Waller’s comment the subsequent day that a rate cut by mid-year stays possible stopped the bleeding.
Short-term Treasury yields, more sensitive than longer-term ones to rate changes by the Fed, have moved essentially the most this week. The ten-year yield is 36 basis points higher than the two-year, vs 34 basis points per week ago. Open-interest data for Treasury futures suggests that investors anticipate further steepening of the curve.