US yields slide amid turmoil involving Fed’s Powell

NEW YORK – US two-year Treasury yields tumbled in volatile trading on Wednesday but came off their lowest levels after President Donald Trump said he was not planning to fire Federal Reserve Chair Jerome Powell, refuting media reports that he planned to do so soon.

Investors, on the other hand, sold off the long end of the Treasury curve, pushing 30-year yields to an eight-week high of 5.08%. US 30-year yields were last flat on the day at 5.014%.

U.S two-year yields, which track interest rate expectations, fell to a roughly one-week low of 3.86% after CBS and Bloomberg reported that Trump had indicated to a group of House Republicans that he would fire Powell.

The yield was last 6.9 basis points lower at 3.889%.

The reports pushed rate cut bets starting in September to 66%, from 54% just before. After Trump said that the reports were not true, that probability stood at 60%.

All told, the Fed funds futures market, which is tied to monetary policy, has priced in about 47 bps in easing for 2025.

“I don’t rule out anything, but I think it’s highly unlikely unless (Powell) has to leave for fraud,” Trump said, a reference to recent White House and Republican lawmaker criticism of cost overruns in the USD 2.5 billion renovation of the Fed’s historic headquarters in Washington.

The benchmark 10-year yield also rose on the initial report, but was last down 3.6 bps at 4.453%.

The yield curve steepened following the report on Powell, with the spread between two- and 10-year yields widening to as much as 61.8 bps. That’s the steepest level since April. That reflects the sell-off at the long end amid fiscal worries and concerns about inflation going out of control if the Fed, under a new chai,r cuts rates aggressively.

The curve was last 56.4 bps, still steeper than Tuesday’s 53.9 bps.

“This story keeps churning, so understandably, markets are nervous that it could happen sooner rather than later re Trump firing Powell,” said Kenneth Broux, head of corporate research and rates, at Societe Generale in London.

“Bond and FX markets do not like the uncertainty. We’ve had stronger US CPI goods ex-autos just yesterday, so to think that lower rates are the way forward as tariffs seep through consumer prices is not going to reassure.”

The Powell back-and-forth overshadowed Wednesday’s data showing tame producer prices last month, keeping the Federal Reserve on track to resume cutting interest rates later this year. US yields fell after the report.

US producer prices index came in unchanged for June, compared with expectations for a 0.2% rise, while core or underlying prices were flat. An increase in the cost of goods because of tariffs on imports was offset by weakness in services.

In the 12 months through June, the PPI increased 2.3% after advancing 2.7% in May. Data on Tuesday, meanwhile, showed consumer prices picking up in June, with solid gains in tariff-exposed goods like household furnishings and supplies, appliances, sporting goods and toys, as well as windows, floor coverings and linens.

Wednesday’s data showing a modest rise in factory production had little impact on the Treasuries market. Manufacturing output ticked up 0.1% last month after an upwardly revised 0.3% increase in May, the Fed said.

Economists polled by Reuters had forecast production unchanged after a 0.1% gain in May.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Dhara Ranasinghe in London; Editing by Kirsten Donovan and Diane Craft)