US yields ease as markets consider rate cut timing, tepid auction demand

NEW YORK – Yields on benchmark US Treasuries were slightly lower on Wednesday afternoon, as oil prices rose and markets assessed the timing of potential interest rate cuts.

Yields on the longer-term Treasuries rose during the day, but receded in afternoon trading. The US 10-year Treasury note’s yield was down 0.6 basis point to 4.287%, and the 30-year bond yield was flat at 4.831%

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 1.1 basis point at 3.773%.

Oil prices rose on Wednesday after sharp declines over the last days. Investors considered strong US energy demand and assessed the stability of the truce in the Middle East.

Federal Reserve Chair Jerome Powell told a US Senate panel on Wednesday that tariff plans may well just cause a one-time jump in prices, but the risk it could cause more persistent inflation is large enough for the central bank to be careful in considering further rate cuts. Debate over the timing for the first rate cuts of the year has been growing since Fed officials appointed by President Donald Trump, such as Michelle Bowman and Christopher Waller, discussed the chance of rate cuts beginning as soon as July.

“Our base case scenario is still the first rate cut of the year in September, but we are closely following the discussions among Fed officials ahead of the July meeting and Jackson Hole Conference,” said Ed Acton, Citigroup’s US rates strategist.

Several Fed officials are expected to speak publicly on Thursday, such as Federal Reserve Bank of Richmond President Thomas Barkin, Cleveland’s Fed president Beth Hammack, board governor Michael Barr and Minneapolis’ Fed president Neel Kashkari.

CME’s FedWatch tool shows markets project a 22% chance of the first rate cut at the July meeting and 90% chance of cuts in September. Markets will be looking for signs of deceleration that could skew the odds to more urgent timing.

On Thursday, the Commerce Department will release the final estimate for first-quarter Gross Domestic Product. The Labor Department will also release initial unemployment claims.

The most important data will come on Friday, with the Personal Consumption Expenditure price index for May, said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York. “Markets do not have now a lot of momentum in either direction right now, data may change that”, he added.

Trump said on Wednesday morning during a NATO meeting in the Netherlands he is already considering candidates to replace Powell next year when his term ends.

The US Treasury sold USD 70 billion in 5-year notes auction, with tepid demand and a 2.36 bid-to-cover ratio. Yields on the 5-year notes were flat in afternoon trading, at 3.842%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 51.4 basis points.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.307% after closing at 2.3% on June 24.

The US dollar 5 years forward inflation-linked swap, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed’s quantitative easing, was last at 2.471%.

(Reporting by Tatiana Bautzer, Editing by Nick Zieminski and Franklin Paul)