US Bonds Climb as Economic Data Backs Bets on Two 2025 Fed Cuts

Yahoo

15-05-2025

(Bloomberg) -- Treasuries gained as a fresh spate of economic data offered signs of ebbing economic activity and dimming inflation, supporting bets that the Federal Reserve will cut interest rates twice this year.
As Coastline Erodes, One California City Considers 'Retreat Now'
How a Highway Became San Francisco's Newest Park
Power-Hungry Data Centers Are Warming Homes in the Nordics
Maryland's Credit Rating Gets Downgraded as Governor Blames Trump
NYC Commuters Brace for Chaos as NJ Transit Strike Looms
The bond gains on Thursday came after several Wall Street strategists boosted their yield forecasts earlier in the week as their firms' economic teams pushed back expectations for when the Fed will resume easing policy. Still, swaps traders maintained wagers on two quarter-point Fed cuts by year-end. The dollar edged lower.
Treasury yields were down as much as 10 basis points, after long maturities were whipsawed earlier in the day by large trades that briefly pushed the 30-year bond to nearly 5%. Rates on debt that matures from five to seven years led the declines.
'Bad news is good news for the bond market' as the latest data could be signs of a weaker economy that may allow the Fed to cut rates sooner than anticipated, said Zachary Griffiths, head of investment-grade and macroeconomic strategy at CreditSights Inc. 'Our base case remains the Fed stays on hold this year as we expect below-potential growth, but no recession, and tariffs - even at the current levels - likely to produce sustained inflationary pressure.'
Prices paid to US producers unexpectedly declined in April by the most in five years, suggesting companies are absorbing some of the hit from higher tariffs. Meanwhile, growth in US retail sales decelerated notably as consumers pulled back spending on imported goods amid concerns about rising prices from levies.
Two-year yields, which are most sensitive to Fed policy, slid as much as nine basis points to 3.96%, while the benchmark 10-year yield dropped a similar amount to 4.44%. Investors have been increasingly wary of buying long-term securities given concern about the US fiscal trajectory, and the 30-year yield dropped by a smaller magnitude.
While swaps traders were fully pricing in the Fed's next reduction for October, the odds in the market were also strong for a move in September. That's ahead of some Wall Street economists, who pushed out their forecasts for the next cut after the recent cooling in US-China trade tensions. For the rest of the year, swaps contracts imply about 0.54 percentage point in total Fed cuts.
The rates strategy teams at TD Securities, JPMorgan Chase & Co. and Bank of America were among those that boosted their forecasts for Treasury yields over recent days.
In the meantime, Republican lawmakers' draft plan for sweeping tax cuts has been moving ahead, sparking renewed focus on the US fiscal trajectory, with the package projected to worsen the federal deficit and lift the government's debt burden.
Jamie Dimon, chief executive officer of JPMorgan Chase, said in a Bloomberg Television interview Thursday that the US deficit and debt load is an issue.
'It creates risk of inflation to me. It creates risk of higher long-term rates,' Dimon said at JPMorgan's annual Global Markets Conference in Paris. That might slow growth and create a stagflation scenario, he added.
Even higher short-term yields risk causing a hit to the fiscal outlook given US debt managers have hoisted sales of bills in recent years. At least $9.3 trillion of federal debt is slated to mature and roll over within a year – in addition to the approximately $2 trillion that the Treasury will need to issue over the next year to cover the federal deficit, according to the Peterson Foundation.
Traders have received through the week signals from Fed policy makers that they're comfortable keeping rates unchanged as they await more clarity on how the administration's trade policy will affect growth and inflation. Last week, the Fed opted to hold rates steady while it waits for further evidence on the strength of the economy.
'Weaker consumer spending and lower inflation could give the Fed some room to ease later in the year if these trends continue,' said David Berson, chief US economist at Cumberland Advisors.
In prepared remarks released on Thursday on the Fed's framework review, Fed Chair Jerome Powell held off on providing insights on the near-term outlook for monetary policy.
--With assistance from Aline Oyamada and Edward Bolingbroke.
(Updates rates, adds strategist comments.)
Cartoon Network's Last Gasp
DeepSeek's 'Tech Madman' Founder Is Threatening US Dominance in AI Race
Why Obesity Drugs Are Getting Cheaper — and Also More Expensive
As Nuclear Power Makes a Comeback, South Korea Emerges a Winner
Tariffs Won't Reindustrialize America. Here's What Will
©2025 Bloomberg L.P.