U.S. Treasury yields, particularly on longer-dated bonds, moved lower on Friday after Federal Reserve Governor Christopher Waller indicated that cooling inflation could pave the way for an interest rate cut as early as the central bank’s next meeting in July. Waller’s comments, made during a CNBC interview, provided new signals on the potential timing of monetary policy easing, influencing bond market sentiment.
Key Yield Movements:
The benchmark 10-year Treasury yield declined by more than 1 basis point, settling around 4.377%.
The yield on the 2-year note, often more sensitive to Fed policy expectations, saw a larger drop, falling over 3 basis points to approximately 3.908%.
- The 30-year bond yield was relatively stable, showing little change at roughly 4.89%.
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(Note: One basis point equals 0.01%, and bond yields typically move inversely to bond prices.)
Waller’s Optimistic Outlook on Inflation and Rates
Governor Waller stated his belief that inflation has softened sufficiently, positioning the Fed to potentially cut rates in July. “I think we’re in the position that we could do this as early as July,” he said, while acknowledging that reaching a consensus within the full policy-setting committee would be necessary.
These remarks follow the Federal Reserve’s June meeting just two days prior, where the central bank opted to keep its benchmark borrowing rate unchanged in the range of 4.25%-4.5%. The committee’s statement from that meeting had reportedly anticipated the possibility of inflation moving higher and economic growth potentially slowing, creating a contrast with Waller’s more dovish stance on immediate action.
Adding context from earlier in the week, markets had seen some upward pressure on yields following the passage of President Trump’s tax and spending bill through the House, raising concerns about potential increases to the U.S. deficit and future Treasury debt issuance. However, Waller’s dovish comments, including suggestions that the Fed could proceed with rate cuts in the second half of the year if potential new tariffs settle around 10%, helped counteract this pressure and contributed to the yield decline.
Broader Market Factors and Analyst Views
Beyond Fed commentary, bond markets continue to digest a mix of economic data and geopolitical developments. Recent U.S. data showed a stronger labor market with weekly initial unemployment claims falling unexpectedly to a one-month low, while manufacturing activity also improved more than anticipated. Conversely, existing home sales data came in weaker than expected. This mixed economic picture provides a complex backdrop for the Fed’s policy deliberations.
Geopolitical tensions, specifically the ongoing conflict between Israel and Iran and President Donald Trump’s consideration of potential direct U.S. intervention, are also being monitored by markets for their potential impact on global stability and asset prices.
Lawrence Gillum, chief fixed income strategist at LPL Financial, suggested that based on the “improving inflation story over the past few months” and recent “softer than expected” economic data, markets might be underestimating the potential pace of future rate cuts. Gillum believes the Fed may cut rates more aggressively than currently priced into market expectations, a scenario he sees as supportive for bond markets moving forward.
