US Treasuries Post Third Week of Gains on Fed Rate-Cut Bets

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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.

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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.

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“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.”

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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. 

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“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.

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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. 

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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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Read: Jim Millstein Says US Risks ‘Fiscal Disaster’ If Recession Hits

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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. 

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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.

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“There is a little bit of optimism that rate cuts are coming, most of that is driven by governors Waller and Bowman basically referencing that July is in play,” Gennadiy Goldberg, head of US rates strategy at TD Securities told Bloomberg TV. He said the rest of the FOMC was split in two camps calling for either two or no rate cuts this year. TD expects the next rate cut to arrive in October as by that stage, the Fed will have enough data on inflation and the jobs market.

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“It is going to be a drift lower in rates, and that’s why our year-end forecast for 10-years is 4%,” he said.