Yields rise as traders wait on data, Fed meeting

US Treasury yields rose on Friday as investors waited on data next week and a Federal Reserve policy meeting later this month to provide the next clues on when the US central bank is likely to begin cutting interest rates.

Yields have tumbled this month as softer jobs data and easing inflation boost the odds of near-term rate cuts and a first cut by September is seen as a sure thing.

Fed officials have said that the economic data is improving the odds of rate cuts but have been reluctant to commit to when they may start.

“You have a market that is convinced that the Fed is going to cut in September and you have a Fed that’s sounding a little bit cautious,” said Angelo Manolatos, macro strategist at Wells Fargo in Charlotte. “We’re starting to see looser labor market conditions and inflation that’s cooperating, especially after that more troubling first quarter.”

The next economic clues will come next week with gross domestic product for the second quarter on Thursday and personal consumption expenditures (PCE) for June on Friday.

Investors will then focus on comments by Fed chair Jerome Powell at the conclusion of the Fed’s July 30-31 meeting for any hints that a September cut is likely.

“The July FOMC will certainly be interesting. I wonder how strong Powell’s guidance is going to be. Perhaps something along the lines of if we continue to receive good inflation data, we can start to remove some policy restraint as early as September,” said Manolatos.

Interest rate sensitive two-year yields rose 4.8 basis points to 4.509% and are up from a four-month low of 4.409% on Tuesday.

Benchmark 10-year yields gained 5.1 basis points to 4.239% and are up from a four-month low of 4.144% on Wednesday.

The yield curve between two-year and 10-year notes was little changed on the day at minus 27 basis points after reaching minus 22 basis points on Monday, the smallest inversion since January.

(Reporting By Karen Brettell, Editing by Nick Zieminski and Diane Craft)