LIVE MARKETS-Treasury yields jump, Fed rate cut expectations pushed back

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TREASURY YIELDS JUMP, FED RATE CUT EXPECTATIONS PUSHED BACK

Treasury yields are jumping on Monday and expectations on when the Federal Reserve will resume interest rate cuts are being pushed even further back after the United States and China reached a better-than-expected deal to temporarily slash tariffs.

The benchmark 10-year Treasury yield US10YT=RR reached 4.469%, the highest since April 14. The yield got as high as 4.592% on April 11 during the broad market selloff that followed President Trump’s April 2 “Liberation Day” announcement of higher-than-expected tariffs.

“In the span of 6 weeks, we went from tariffs that many (including myself) thought would lead to Depression, back to something within the grand scheme of “normalish”. It makes sense to be back to levels in the market last seen around the original tariffs went in place (first fentanyl, then steel and aluminum),” Peter Tchir, head of macro strategy at Academy Securities, said in a report.

“Now we get to figure out what these tariffs (assuming more deals, and the deals in place remain stable), do for the economy, corporate earnings and stock valuations,” Tchir added. “For now, expect more positive announcements on trade, but a lot is already priced in.”

The trade deal with China has reduced expectations of a U.S. recession, and in turn when the Fed is likely to resume rate cuts.

Fed funds futures traders are pricing in a 43% chance of a rate cut by the Fed’s July meeting, down from 60% on Friday, and 82% odds of a cut in September, according to the CME Group’s FedWatch Tool.

(Karen Brettell)

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