TREASURIES-US yields modestly lower with focus on data, Fed easing this year

By Gertrude Chavez-Dreyfuss

NEW YORK, June 30 (Reuters) - U.S. Treasury yields slipped on Monday, with investors focused on this week's slew of economic data and amid rising expectations of a quicker pace of policy easing by the Federal Reserve this year.

President Donald Trump's sweeping tax-cut and spending bill narrowly advanced over the weekend in a procedural vote to open debate on the proposed legislation, but so far reaction in the bond market has been muted.

U.S. Senate Republicans on Monday will try to pass the bill despite divisions within the party about its expected $3.3 trillion hit to the nation's debt pile. They are poised for a marathon session in which the minority Democrats are allowed to offer an unlimited number of votes.

With the tax and spending bill still up for debate in the Senate, bond investors are focused on a data-packed calendar this week led by Thursday's nonfarm payrolls report. A Reuters poll showed that economists expected 110,000 new jobs in June, down from 139,000 in May. The unemployment rate was expected to have crept higher to 4.3%, from 4.2% last month.

"You'll have all investors paying attention to the labor market data on Thursday," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania. "The data will reconfirm what the current path is: whether it's still wait and see or more opening the possibility of a weaker labor market."

In midmorning trading, U.S. 10-year yields slipped 1 basis point (bp) to 4.273% US10YT=RR. The benchmark yield was up 47 bps for the month of June and 78 bps for the second quarter, which put it on track for the biggest rise since the quarter ending in September 2024.

On the shorter end of the curve, U.S. two-year yields, which track interest rate expectations, were little changed, at 3.736% US2YT=RR. On a monthly basis, two-year yields fell 17.8 bps, the largest monthly fall since April, while for the second quarter, the yield fell 17.4 bps.

For the first half of 2025, two-year yields sank more than 50 bps, on track for the biggest decline since end-2019.

There has also been a dovish tone in the market, Barnes noted, as Federal Reserve officials over the last two weeks have touted rate cuts in July as a possibility, notably Fed Governor Christopher Waller and Fed Vice Chair for Supervision Michelle Bowman.

U.S. rate futures have priced in a roughly 20% chance of a rate cut at the July meeting, and 94% chance the Fed will ease in September. For the year, traders factored in about 66 bps in rate cuts.

U.S. Treasury Secretary Scott Bessent also told Bloomberg Television on Monday that he sees lower rates coming because inflation has been "tame," noting that the Fed made a "gigantic" mistake in 2022.

The Fed raised interest rates seven times in 2022 to battle high inflation, which reached a 40-year peak. The rate hikes began in March 2022, with the fed funds rate increasing from near zero to a range of 4.25%–4.5% by December 2022. That was the fastest monetary tightening since the 1980s.