TREASURIES-US yields fall after Fed's Bowman signals potential rate cut as soon as July

By Tatiana Bautzer

NEW YORK, June 23 (Reuters) - Yields on U.S. Treasuries fell on Monday as Federal Reserve vice-chair Michelle Bowman said the first interest rate this year could come as soon as July, and reaction from geopolitical events was muted.

Yields were slightly lower on the session after the U.S. bombed Iran's nuclear sites over the weekend, raising geopolitical tensions, and extended their fall after Bowman's comments.

Bowman, recently tapped by President Donald Trump to be the central bank’s top bank overseer, said Monday she is growing more concerned with risks to the job market than with the potential inflationary effects of tariffs.

U.S. 10-year Treasury yields fell after Bowman's comments and were last down 6.3 basis points at 4.312%. The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 7.2 basis points to 3.836%, the lowest yield in more than two weeks.

Markets are expecting the first interest rate cuts to come later in the year, potentially beginning in September. The CME's FedWatch tool showed around the market open a 77% chance of rates being held steady at the July meeting. That percentage was still around 75% on late morning trading.

MUTED REACTION

Before Bowman's comments, U.S. Treasury yields were already lower, as the market reacted coolly to the U.S. attacks on Iran over the weekend. Yields on benchmark 10-year Treasuries were down around 3 basis points in the morning, as markets watched the calm reaction on oil markets.

Oil prices fell 1% on Monday after touching a five-month high as markets tried to gauge the impact on transit of oil and gas via the Strait of Hormuz.

"It was a surprisingly calm reaction, markets are waiting to see if there will be disruption in trade. If oil prices do not rise, that's good news to inflationary pressures", said Vail Hartman, U.S. rates strategist at BMO Capital Markets in New York.