Oil falls as OPEC+ output hike adds to oversupply concerns

NEW YORK – Oil prices fell to their lowest levels in a week on Monday after OPEC+ agreed to another large output increase in September, adding to oversupply concerns after US data showed lacklustre fuel demand in the top-consuming nation.

Brent crude futures fell 91 cents, or 1.3%, to settle at USD 68.76 a barrel, while US West Texas Intermediate crude declined by USD 1.04, or 1.5%, to close at USD 66.29 a barrel.

Both contracts settled at their lowest in a week, after declining close to 3% on Friday.

The Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, agreed on Sunday to raise oil production by 547,000 barrels per day (bpd) for September.

The latest in a series of accelerated output increases aimed at capturing market share was in line with market expectations and marks a full and early reversal of the group’s largest tranche of output cuts, amounting to about 2.5 million bpd, or about 2.4% of global demand.

While the group cited healthy market fundamentals to back its decision, data released by the US government last week showed the weakest gasoline demand in May, the start of the country’s summer driving season, since the COVID-19 pandemic of 2020.

The data also showed US oil production at a monthly record high in May, adding to global oversupply concerns.

Oil traders are now hedging for the possibility of further supply increases from OPEC+, with potential discussions to unwind a further 1.65 million bpd of cuts at the group’s next meeting on September 7 adding pressure to oil prices.

“OPEC+ retains a substantial amount of spare production capacity, and markets are now watching closely to see whether the group will tap into it,” StoneX analyst Alex Hodes said.

“So far, there are no clear signals that OPEC+ intends to deploy this additional capacity, but the possibility remains on the table,” he added.

Analysts at Goldman Sachs expect the actual increase in supply from the eight OPEC+ countries that have raised output since March will be 1.7 million bpd because other members have cut output after overproducing.

Investors also continued to digest the impact of the latest US tariffs on exports from dozens of trading partners, and remain wary of further US sanctions on Russia.

US President Donald Trump has threatened to impose 100% secondary tariffs on Russian crude buyers as he seeks to pressure Moscow into halting its war in Ukraine.

Trump on Monday said he will substantially raise tariffs on India over its purchases of Russian oil, after two Indian government sources told Reuters over the weekend that the country will keep buying oil from Moscow despite Trump’s threats.

That development helped limit oil’s losses. About 1.7 million bpd of crude supply will be at risk if Indian refiners stop buying Russian oil, ING analysts said in a note.

“All eyes in the market will now shift to US President Trump’s decision on Russia this Friday and whether he targets buyers of Russian oil with secondary sanctions/tariffs or not,” UBS analyst Giovanni Staunovo said.

(Reporting by Shariq Khan, Enes Tunagur, and Florence Tan; Editing by Emelia Sithole-Matarise, David Goodman, Susan Fenton, Paul Simao, and Daniel Wallis)

Have we seen Powell’s last rate cut as Fed chair?: McGeever

ORLANDO, Florida – Federal Reserve Chair Jerome Powell made it clear on Wednesday that the resilient US labor market is currently the primary determinant of monetary policy, a signal that strong July employment figures could snuff out all bets for a September rate cut and reduce the likelihood of any further easing this year.

At his press conference following the Federal Open Market Committee’s meeting on Wednesday, Powell insisted that the rate-setting body’s next move will depend on the “totality” of incoming economic data. He acknowledged the case for easing, like the softening in consumer spending, GDP growth of only 1.2% in the first half of the year, and downside risks to the job market from weakening labor demand and supply.

But he signaled why the Fed is maintaining its mildly restrictive stance: “The main number you have to look at right now is the unemployment rate,” Powell told reporters.

This firm position is particularly notable given that Governors Christopher Waller and Michelle Bowman voted to ease, the first time in over 30 years that there have been two dissenters at a Fed policy meeting.

But Powell has a point. The labor market is still broadly in balance, thanks to tighter immigration controls capping the inflow of foreigners into the workforce. Other indicators like job quits and openings rates are holding up well too. Plus, an unemployment rate of only 4.1% is hardly justification for a rate cut.

The initial market reaction – a retreat on Wall Street, rise in bond yields, surge in the dollar and further cooling of rate cut bets in money markets – suggests investors heard Powell’s message loud and clear.

Rates futures markets now indicate that the probability of a quarter-point cut in September is essentially a coin toss, the least dovish pricing in over a year. Only one rate cut by the end of this year is fully priced.

Steven Englander, head of global G10 FX research at Standard Chartered, says it’s difficult to argue with the market’s interpretation based on Powell’s tone.

“Powell is pretty clear that he’s tying himself to the unemployment rate,” Englander notes.

PRECARIOUS FULL EMPLOYMENT

The labor market’s resilience shows why financial markets have once again overestimated the Fed’s appetite for easing.

The unemployment rate has been anchored at 4.0-4.2% for over a year. That’s historically low, and as Powell says, essentially shows the economy is running at full employment. As long as that remains the case it will be difficult to justify cutting rates, even if that balance is increasingly precarious due to the “dual slowing” of labor supply and demand, as RBC’s Mike Reid puts it.

And we mustn’t ignore inflation, which also arguably warrants Powell’s “modestly” restrictive policy stance. Annual inflation is running “somewhat” above the Fed’s 2% target, according to Powell, with core CPI at 2.9% and core PCE at 2.8%.

And with the pass-through from tariffs yet to be fully felt, the risks to prices are skewed to the upside. Powell reckons that tariffs should represent a one-off price rise only, but he admits no one can be sure. If the nascent tariff-fueled creep in goods prices persists, the Fed may feel it has to wait to ease policy until the impact subsides. And that probably won’t be until next year.

At the height of the post-Liberation Day turmoil in early April, traders were pricing in more than 130 basis points of easing this year. And just one month ago, they were expecting around 70 bps of cuts by year’s end, but that’s now down to around 35 bps.

Looking further out, only 65 bps of easing is priced into the futures curve by May of next year when Powell’s term as Fed Chair ends. Could Powell have presided over his last rate cut as Fed Chair? That’s unlikely, but certainly not impossible.

(The opinions expressed here are those of the author, Jamie McGeever, a columnist for Reuters.)

(Editing by Andrew Heavens)

Longer-dated US yields dip as investors eye payrolls data

NEW YORK – Longer-dated US Treasury yields slid on Thursday before the government’s highly anticipated jobs report for July due on Friday, reversing a rise the previous session following less dovish comments from Federal Reserve Chair Jerome Powell.

Powell on Wednesday doused expectations of a rate cut at the next Fed meeting in September. In a press briefing after the Fed held rates steady, Powell said the Fed is focused on controlling inflation, not on government borrowing or home mortgage costs that President Donald Trump wants reduced. He added that the risk of rising price pressures from the administration’s trade and other policies remains too high for the central bank to begin loosening its “modestly restrictive” grip on the economy.

Thursday’s economic reports, led by the US personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of inflation, supported the US central bank’s patient stance in cutting interest rates. US jobless claims were also better than forecast, suggesting that the labor market was not falling off a cliff.

Federal funds futures, which are tied to the US central bank’s monetary policy, have priced in just a 39% chance of easing in September, compared with 65% before the Fed statement on Wednesday, according to the CME’s FedWatch.

“It’s really now just all about waiting for nonfarm payrolls tomorrow. And while the market might be pricing out the odds of a cut in September following Powell’s comments, it clearly remains comfortable with the idea that rate cuts are a matter of when, not if,” said Zachary Griffiths, head of investment-grade and macro strategy at CreditSights in Charlotte, North Carolina.

“Despite all of the macro volatility and intense focus on the data, we’ve really been in a fairly tight range recently with, let’s say the 10-year anchored around 4.4%, give or take a handful of basis points.”

US 10-year yields were last down 2 basis points (bps) on the day at 4.358%, but up 13 bps on the month. The two-year yield, which reflects interest rate expectations, rose 0.6 bps to 3.943%. It was up 22 bps so far for the month of July.

US 30-year yields were also lower on the day, down 2.7 bps at 4.886%, but up 11 bps this month.

The personal consumption expenditures (PCE) price index rose 0.3% last month after an upwardly revised 0.2% gain in May, the data showed. Economists polled by Reuters had forecast the PCE price index climbing 0.3% following a previously reported 0.1% rise in May. In the 12 months through June, the PCE price index advanced 2.6% after increasing 2.4% in May.

A separate report showed the number of Americans filing new applications for unemployment benefits increased marginally last week, suggesting that the labor market remained stable, though it is taking longer for laid-off workers to find new opportunities. Initial claims for state unemployment benefits rose by 1,000 to a seasonally adjusted 218,000 for the week ended July 26, data showed. Economists polled by Reuters had forecast 224,000 claims for the latest week.

Investors are now looking to Friday’s employment report, with Wall Street economists forecasting new jobs created at 110,000, down from 147,000 in June. The unemployment rate is seen edging up to 4.2% in July from 4.1% in the previous month.

Trade negotiations also remain a focus as Trump reaches some new trade deals and enacts more tariffs on trade partners.

Trump gave Mexico a 90-day reprieve from higher tariffs to negotiate a broader trade deal but was expected to issue higher final duty rates for most other countries as the clock wound down on his Friday deal deadline.

US appeals court judges sharply questioned on Thursday whether Trump’s tariffs were justified by the president’s emergency powers, as lawyers for states and businesses challenging the measures argued he exceeded his authority.

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Karen Brettell; Editing by Matthew Lewis and Daniel Wallis)

Equities stall as early enthusiasm ebbs; Amazon, Apple earnings due

NEW YORK – US stocks closed well off early highs on Thursday, following the latest round of corporate earnings and economic data, as investors awaited results from megacaps Amazon and Apple due after the closing bell.

Microsoft shares rose after it posted a strong earnings report and briefly surpassed the USD 4 trillion market cap threshold, becoming only the second publicly traded company to ever touch the milestone after Nvidia.

Meta Platforms surged and hit an intraday record high of USD 784.75 as AI-driven growth in its core ad business powered a bullish revenue forecast.

Still, other AI-related names such as chipmakers Broadcom and Nvidia were weaker on the session, which weighed on the PHLX semiconductor index.

“Looking at the market action today, you have haves and have-nots, and so you have a couple tech companies, like a lot of the semiconductor-related and semi-cap equipment-related stocks are doing pretty poorly,” said Ellen Hazen, chief market strategist at F.L. Putnam Investment Management in Lynnfield, Massachusetts.

“But then, of course, Microsoft is doing pretty well, and the same thing with Amazon and Meta, which are doing really well.”

Of the 297 companies in the S&P 500 that have reported earnings through Thursday morning, 80.8% have topped analyst expectations, according to LSEG data, compared with the 76% beat rate over the past four quarters

According to preliminary data, the S&P 500 lost 19.33 points, or 0.37%, to end at 6,339.31 points, while the Nasdaq Composite gained 8.40 points, or 0.04%, to 21,138.08. The Dow Jones Industrial Average fell 320.83 points, or 0.72%, to 44,140.45.

The S&P 500 had risen as much as 1% and the Nasdaq as much as 1.5% earlier in the session. The Nasdaq has not logged a move of at least 1% in either direction since July 3 while the S&P last recorded a daily 1% move on June 24.

Earlier economic data from the Commerce Department report showed inflation picked up in June, with new tariffs pushing prices higher and stoking expectations that price pressures could intensify in the coming months, while weekly initial jobless claims signaled the labor market remained on stable footing.

Investors will now eye Friday’s non-farm payrolls report and a looming tariff deadline, as US President Donald Trump was expected to issue higher final duty rates for countries that have not reached an agreement, although Mexico was granted a 90-day reprieve.

US stocks have rallied after a sharp selloff that began in early April after Trump announced a bevy of sharp tariffs, only to rebound as deals have been struck with many trading partners on duty levels. The Dow, S&P 500 and Nasdaq recorded their third straight monthly gain.

Drug stocks were also weaker after the White House said Trump sent letters to the CEOs of 17 major pharmaceutical companies, urging immediate action to lower the cost of prescription drugs for Americans. The NYSE Arca pharmaceutical index was down 2.3%.

(Reporting by Chuck Mikolajczak, additional reporting by Nikhil Sharma and Pranav Kashyap in Bengaluru; Editing by Marguerita Choy)

Gold falls over 1% after Fed keeps rates steady, strong US data

Gold fell more than 1% on Wednesday as the Federal Reserve held interest rates steady and gave little indication of when cuts might occur, while strong US economic data further dimmed the appeal of the zero-yield asset.

Spot gold was down 1.5% at USD 3,275.92 per ounce, as of 03:08 p.m. ET (19:08 GMT).

US gold futures settled 0.8% lower at USD 3,352.8.

The Federal Reserve held interest rates steady in a split decision that gave little indication of when borrowing costs might be lowered and drew dissent from two of the US central bank’s governors.

Fed Chair Jerome Powell said the central bank had made no decision about September, when many market participants were expecting the first interest rate cut of the year to be made. He added that “downside risks to the labor market are certainly apparent.”

“Powell sticks to his guns as he focuses more on keeping inflation in check than employment concerns,” said Tai Wong, an independent metals trader.

“The dollar jumped, putting additional pressure on gold, though bullion continues to hold the bottom of the range. While a deeper retracement may occur, that will likely draw buyers as the overall argument for gold – uncertainty, high US debt, de-dollarization, remains robust.”

The ADP National Employment report showed US private payrolls rose more than expected in July, though signs of labor market softening persisted.

Nitesh Shah, commodities strategist at WisdomTree, noted that the louder the Trump administration voices its distaste for current policymaking, the more likely it is to drive gold prices.

Gold tends to perform well in a low-interest rate environment and during periods of uncertainty.

Spot silver dropped 3.2% to USD 36.97 per ounce, hitting a near three-week low.

Platinum lost 6.6% to USD 1,303.19, its lowest since June 24, while palladium was down 4.9% to USD 1,196.75.

It looks like some profit-taking by the shorter term futures traders, said Jim Wyckoff, a senior analyst at Kitco Metals.

“The fact that the gold market has sold off a little bit recently, I think that’s put some pressure on platinum and Palladium.”

(Reporting by Sherin Elizabeth Varghese and Sarah Qureshi in Bengaluru; Editing by Tasim Zahid, Vijay Kishore, and Rod Nickel)

US yields climb as Fed’s Powell uncertain about September easing

NEW YORK – US Treasury yields rose on Wednesday after Federal Reserve Chair Jerome Powell said it’s too soon to say whether the central bank will cut its interest rate target in September.

“We have made no decisions about September, we don’t…do that in advance,” Powell said at a press conference after the Fed held interest rates steady at the end of a two-day policy meeting, as widely expected.

He said going forward, “we’ll be taking that information” about the economy in the run-up to the next central bank gathering.

In standing pat for a fifth straight policy meeting, the Fed cited low unemployment and solid labor market conditions. But it noted that economic growth “moderated in the first half of the year,” boosting the case to lower rates at a future meeting should that trend continue.

The Fed kept its benchmark overnight interest rate tethered in the 4.25%-4.50% range. Wednesday’s Fed decision, however, saw two dissenting votes by governors, the most in more than three decades.

In late afternoon trading, the benchmark US 10-year yields were last up 4.4 basis points (bps) at 4.372%, while the two-year yield, which reflects interest rate expectations, was up 5.7 bps at 3.932%.

US 30-year yields were also higher on the day, up 3.1 bps at 4.899%.

“There’s enough evidence to suggest that the Fed should be cutting right now…we do think that beneath the surface economic activity has slowed down and that’s true whether you’re looking at consumption or it’s true whether you’re looking at labor,” said Tom Porcelli, chief US economist, at asset manager PGIM in Newark.

“In many ways the Fed is haunted by the ghost of (a) transitory past. That gives them an element of pause…I think because of the transitory mistake, it slows down their reaction function,” he said, referring to the Fed’s slow response to inflation during the pandemic years on views it would be short-lived.

Both Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller, who has been mentioned as a possible nominee to replace Powell when his term expires next May, were appointed to the board by Trump and “preferred to lower the target range for the federal funds rate by one quarter of a percentage point at this meeting,” the Fed’s policy statement said.

Treasury yields briefly ticked lower after the disclosure of the two dissenting votes.

Federal funds futures, which are tied to the US central bank’s monetary policy, are implying lower odds of a rate cut in September with a 50% probability, according to LSEG calculations. That was 65% before the Fed statement.

US rate futures also reduced the expected pace of easing this year to just 39 bps. That was 44 bps before the Fed decision.

In other parts of the bond market, the yield curve flattened, with the gap between two-year and 10-year yields narrowing to 43 bps after Powell’s press conference, compared with 44.9 bps late on Tuesday.

The curve flattened after the Fed chief gave no signal of a September cut, leading investors to sell two-year Treasuries, pushing their yield higher.

Earlier in the session, the US yields gained after data showed gross domestic product increased at a 3.0% annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of second-quarter GDP.

“This report likely gives the Fed a little more air cover to hold rates steady through summer,” wrote Scott Helfstein, Global X’s head of investment strategy, in emailed comments.

At the same time, US private payrolls increased more than expected in July, the ADP National Employment Report showed on Wednesday.

Private payrolls rose by 104,000 jobs last month after a revised 23,000 decline in June. Economists polled by Reuters had forecast private employment increasing 75,000 following a previously reported drop of 33,000 in June.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saeed Azhar; Editing by Andrea Ricci and Daniel Wallis)

Oil steady after big gains on Trump’s Russia ultimatum

BEIJING – Oil prices ticked up in early trading on Wednesday after rising more than 3% in the previous session as potential supply shortages came into focus after US President Donald Trump gave Moscow an abbreviated deadline toward ending the war in Ukraine.

Brent crude futures rose 14 cents, or 0.19%, to USD 72.65 a barrel by 0048 GMT while US West Texas Intermediate crude climbed 2 cents, or 0.03%, to USD 69.23 a barrel.

Both contracts had settled at their highest since June 20 on Tuesday.

On Tuesday, Trump said he would start imposing measures on Russia, including 100% secondary tariffs on its trading partners, if it did not make progress on ending the war within 10-12 days, moving up an earlier 50-day deadline.

“Effective secondary 100% tariffs would lead to a dramatic shift in the oil market. A number of key buyers of Russian oil would likely be reluctant to continue purchases, particularly large US trading partners,” ING analysts said in a note.

“While this gives OPEC+ room to start unwinding additional tranches of supply cuts, it would still leave the market in deficit under a worst-case scenario.”

The US had warned China, the largest buyer of Russian oil, that it could face huge tariffs if it continues buying, Treasury Secretary Scott Bessent told a news conference in Stockholm where the US was holding trade talks with the EU.

JP Morgan analysts said in a note that while China was not likely to comply with US sanctions, India has signaled it would do so, potentially putting 2.3 million barrels per day of Russian oil exports at risk.

The US and EU averted a trade war with a deal that included 15% US tariffs on European imports, easing concerns about the impact of trade tensions on economic growth and offering further support to oil prices.

In Venezuela, foreign partners of state oil company PDVSA are still waiting for authorisations from the US to operate in the sanctioned country after talks on the subject last week, which could return some supply to the market, potentially easing pressure for prices to rise.

(Reporting by Colleen Howe; Editing by Muralikumar Anantharaman)

Gold holds steady ahead of Fed policy statement

Gold prices steadied on Wednesday as investors held back on making big bets ahead of the Federal Reserve’s policy statement later in the day for cues into future rate cuts, while focus remained on US trade talks ahead of the August 1 deadline.

FUNDAMENTALS

* Spot gold was steady at USD 3,329.19 per ounce as of 0020 GMT. US gold futures GCcv1 rose 0.1% to USD 3,327.70.

* US and Chinese officials agreed to seek an extension of their 90-day tariff truce on Tuesday, following two days of talks in Stockholm.

* However, US officials said it was up to President Donald Trump to decide whether to extend a trade truce that expires on August 12 or potentially let tariffs shoot back up to triple-digit figures.

* Meanwhile, the US dollar index held steady after hitting a more than one-month high on Tuesday, making greenback-priced bullion more expensive.

* Investors turned their focus to the Fed’s policy to gauge its future rate cut path, following the central bank’s two-day meeting, during which it is widely expected to keep rates steady, despite Trump’s constant call to lower them.

* The US trade deficit in goods narrowed to its lowest in nearly two years in June as imports fell sharply, cementing economists’ expectations that trade likely accounted for much of an anticipated rebound in economic growth in the second quarter.

* The International Monetary Fund slightly raised its global growth forecasts for 2025 and 2026 on Tuesday, citing stronger-than-expected buys ahead of a jump in US tariffs on August 1 and a drop in the effective tariff rate to 17.3% from 24.4%.

* Meanwhile, on Tuesday, Trump threatened tariffs and other measures on Russia “10 days from today” if Moscow showed no progress toward ending its more than three-year-long war in Ukraine.

* Spot silver held steady at USD 38.20 per ounce, platinum fell 0.4% to USD 1,389.20 and palladium remain unchanged at USD 1,258.75.

(Reporting by Anmol Choubey in Bengaluru; Editing by Sumana Nandy)

Bond investors warm to risk, with Fed staying put in ‘Goldilocks’ economy

NEW YORK – Bond investors are adding portfolio risk after a long period of caution, seeing the US economy in a “Goldilocks” moment, not too hot nor too cold, as they bet the Federal Reserve will leave rates unchanged for a fifth straight policy meeting.

Investors are buying more corporate bonds and adding a little bit more duration to their portfolios, suggesting they’re more comfortable going further out the curve.

The US central bank’s policy-setting Federal Open Market Committee is broadly expected to keep its benchmark overnight interest rate in the 4.25%-4.50% range when its two-day meeting ends Wednesday. Standing pat has been its default stance since December, given a surprisingly resilient economy that has seen a fairly stable labor market and generally subdued inflation.

“Our systems are saying that economic growth seems to be fairly firm, although we could argue that it’s fraying at the edges,” said Jeff Young, head of investment strategy, at PGIM Quantitative Solutions in New Jersey.

“We’ve seen some prices ticking up, but that’s not necessarily overall generalized inflation. It’s a one-off price increase on certain goods and that has allowed the Fed to maintain this wait-and-see posture.”

Futures tracking the Fed’s policy rate show a roughly 65% chance that the central bank will deliver a rate cut in September, with another possible at the October or December meetings. All told, rates futures on Monday implied about 44 basis points (bps) of easing in 2025, or just under two rate declines of 25 bps each.

The Fed reduced rates three times in 2024 before pausing its easing cycle early this year.

The US central bank’s current wait-and-see approach is a signal for bond investors to tiptoe back into risk-taking, analysts said.

“We are overweight credit risk within our portfolios, getting risk back that we sold or removed in March and the beginning part of April given the uncertainty and tight valuations at that point in the economy,” said Vishal Khanduja, head of broad markets fixed income at Morgan Stanley Investment Management in Boston.

“Growth is slowing, but not slowing into recession levels. So this almost makes it a very ‘Goldilocks’ type of environment for fixed income, especially credit where you don’t see recession fears and balance sheets are very strong, both consumer and corporate.”

FADING WORRIES

Signs of easing anxiety have been in place in the bond market the last few weeks.

J.P. Morgan said in its latest Treasury survey as of a week ago that the percentage of all clients that are long duration relative to their benchmarks has increased to 30% from 26% in the previous week. Adding duration can reflect optimism that interest rates will fall.

Expressed in number of years, duration relates to how far a bond’s value will fall or rise when interest rates move. In general, when rates fall, higher-duration bonds experience a greater increase in value compared to those with lower duration.

In the credit market, spreads to Treasuries have also narrowed since blowing out the week after President Donald Trump’s April 2 “Liberation Day” tariff announcements that panicked markets with the prospect of trade wars that could exacerbate inflationary pressures.

The investment-grade bond spread stood at 78 basis points (bps) last Friday, the tightest since mid-November last year, and 1 bp shy of the lowest point of 77 bps hit in 1998, according to ICE BAML data. It had touched 121 bps, or the highest since November 2023, in the days after Liberation Day.

The high-yield spread also showed a similar recovery, showing 284 bps last Friday, down from 461 bps a week after Liberation day.

A narrower spread indicates that bond investors are demanding less additional yield to hold riskier corporate bonds over safer US Treasuries and reflects confidence about the US economy and corporate health.

Bond volatility has also been low, suggesting a stable economic environment for fixed income investors. As of last Friday, the ICE BofA MOVE index was 82.09, a two-week low.

“We are running our portfolio at lower levels of risk than our long-run averages,” said Dan Siluk, head of global short duration and liquidity at Janus Henderson Investors, but he clarified that caution remains because the firm has kept duration shorter.

“We’ve got more triple Bs (corporate bonds with a Triple B-rating), we’ve got high yield in the portfolio, but rather than owning a three-year, I’m going to own the one-year, he added. “And that means I’m turning the portfolio over more, but I’m looking for good opportunities.

Other bond investors are similarly cautious, but on the lookout for relative value.

“The quality of the portfolio is the highest it has ever been given all the uncertainty. So we have been more defensive. But we’re still deploying cash and we are looking for relative value opportunities,” said David Norris, a partner at TwentyFour Asset Management.

“We think markets are very frothy given the action in spreads.”

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Laura Matthews; Editing by Alden Bentley and Anna Driver)

Prices dip after EU trade deal, ahead of auctions

NEW YORK – US Treasuries slipped on Monday, pushing yields higher, as risk sentiment suggested more optimism about the global economic outlook after the United States and the European Union struck a trade agreement on Sunday that was received with mostly relief by investors.

It’s an event- and data-packed week starting with the Treasury’s refunding announcement on Wednesday. The US Treasury is widely expected to maintain current auction sizes for notes and bonds when it announces financing plans, and will likely keep them steady for some time.

Bond market participants are also bracing for Monday’s auctions of USD 69 billion in US two-year notes and USD 70 billion in five-year Treasuries. That has spurred some concession in the market, meaning investors are selling Treasuries ahead of the auction so they can buy them back later at a lower price.

The Treasury will also auction USD 82 billion in 13-week bills, and USD 73 billion in 26-week debt later on Monday. It has focused on issuing Treasury bills to rebuild its cash balance that has been depleted with a debt ceiling issue that was unresolved prior to President Donald Trump’s tax and spending legislation being signed into law on July 4.

But it has been the EU trade deal that has set the bond market on this risk-on path.

The agreement, announced on Sunday between two economies that account for almost a third of global trade, will see the US impose a 15% import tariff on most EU goods – half the threatened rate but much more than what Europeans hoped for.

The EU also pledged to make USD 750 billion in strategic purchases, covering oil, gas, nuclear, fuel and chips during Trump’s term, including up to USD 600 billion in US military equipment.

“The trade deal over the weekend was the first that investors can trade on. I don’t think anybody was really expecting that,” said Jim Barnes, director of fixed income, at Bryn Mawr Trust in Berwyn, Pennsylvania.

“The market has taken that on the positive side, with the equity market starting higher, bond yields trending up,” Barnes said adding that the deal has reduced some uncertainty in the market, spurring more growth.

In late morning trading, the benchmark 10-year yield was up 2.4 basis points (bps) at 4.409%, after posting last Friday its largest weekly decline in a month. US 30-year yields rose 2 bps to 4.947%. On Friday, 30-year yields posted their biggest weekly fall in two months.

The two-year yield, which reflects interest rate expectations, edged up 1.3 bps to 3.929%.

The Federal Reserve also meets this week in a two-day meeting. It is broadly expected to keep its benchmark overnight interest rate in the 4.25%-4.50% range when its two-day meeting ends on Wednesday.

Ahead of the auction, US five-year yields were up 1.4 bps at 3.966%.

Analysts expect Monday’s sale of two-year and five-year notes to be well-received.

“All else being equal, we’d expect this reality to cheapen the front-end of the curve as an auction concession,” wrote BMO Capital Markets in a research note, referring to expectations that yields will fall after the auction.

The Treasury will also announce later on Monday borrowing estimates for the quarter. In the Treasury’s preliminary estimate in May, the department announced that it would borrow USD 554 billion for the third quarter. Analysts expect that figure to sharply increase.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski)

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