US yields reverse course to trade lower ahead of Fed, trade talks

Mint

25-07-2025

Investors brace for Fed meeting, tariff deadline
Labor market update, GDP data on deck next week
Treasury refunding announcement could move bond market
(Adds context, graphic, analyst comments; updates yields)
NEW YORK, July 25 (Reuters) - U.S. Treasury prices rose on Friday in a subdued trading session, as investors prepared for a data-heavy week, updates on U.S. trade talks and a Federal Reserve policy meeting.
The U.S. central bank is expected to leave interest rates unchanged at its rate-setting meeting next week, but all eyes will be on Fed Chair Jerome Powell's remarks, as investors look for clues on whether rate cuts are on the horizon this year.
A U.S. trade deal with Japan this week and expectations of a similar agreement with the European Union have eased market concerns ahead of President Donald Trump's August 1 tariff deadline, as the prospect of lower-than-feared import duties is largely seen as softening their economic impact.
European Commission President Ursula von der Leyen will meet Trump on Sunday in Scotland, after EU officials and diplomats said they expected to reach a framework trade deal this weekend.
Treasury yields, which move inversely to prices, were drifting higher earlier on Friday but changed direction over the course of the trading session, with no clear driver.
"This week is one of those sleepy summer weeks that has very little to move Treasuries one way or the other and I think that's why you're seeing this slow move lower in yields," said Art Hogan, chief market strategist at B Riley Wealth.
On the U.S. economic front, the only data release on Friday was the preliminary June reading of Durable Goods Orders, which came in better than forecast, even though new orders for key U.S.-manufactured capital goods unexpectedly fell in June, the Commerce Department's Census Bureau said.
With fresh catalysts in short supply, the market earlier on Friday took its lead from Thursday's European Central Bank meeting, where policymakers kept interest rates steady and delivered a cautiously optimistic outlook on the economy, dimming hopes for further easing this year.
"The ECB was nowhere as dovish as people expected and macro data hasn't been bad to say the least," said Slawomir Soroczynski, head of fixed income at Crown Agents Investment Management in London.
Market risk appetite has remained intact despite Tesla's disappointing financial results earlier this week, added Soroczynski. U.S. stocks rose on Friday following record closes for the S&P 500 and the Nasdaq on Thursday.
Trump clashed with Powell during a rare presidential visit to the U.S. central bank on Thursday, but said he did not intend to fire him, as he has frequently suggested he would. On Friday, he said he got the impression that the head of the U.S. central bank might be ready to lower interest rates.
Benchmark 10-year Treasury yields declined by two basis points to 4.388%. Two-year yields, which more closely reflect expectations on monetary policy, were only marginally lower at 3.917%.
Bond investors will get an update next week from the Treasury Department on its quarterly issuance plans.
Analysts expect no changes to the auction sizes of notes and bonds at the July 30 refunding announcement, with the Treasury relying more heavily on Treasury bills to fund government budget deficits. However, the Treasury could expand the scope of its buyback program, which could be supportive for the long end of the Treasury yield curve.
"If (Treasury Secretary Scott) Bessent doesn't meet the market's expectations for growing buybacks, a sharp selloff in Treasuries could ensue," said Ian Lyngen, an analyst at BMO Capital Markets, in a note.
On deck next week, in addition to the Fed's meeting, there will also be second-quarter gross domestic product data and July Non-Farm Payrolls.
(Reporting by Davide Barbuscia; Editing by Frances Kerry and Cynthia Osterman)