Treasury Bonds Drift Lower as the Fed Meeting Shifts Into Focus
Yields on U.S. government bonds showed minimal movement on Friday morning as traders reacted to President Donald Trump’s recent remarks on China and shifted focus toward next week’s Federal Open Market Committee (FOMC) meeting.
Current Treasury Yield Movements
The yield on the 2-year Treasury fell slightly, dropping by 2.5 basis points to 4.259%, compared to 4.284% on Thursday.
Meanwhile, the 10-year Treasury yield edged up marginally to 4.639% from 4.636% the previous day.
The yield on the 30-year Treasury also saw a slight increase, rising to 4.87% from Thursday’s close of 4.868%.
Thursday’s closing levels for both the 10-year and 30-year Treasury yields marked their highest since January 15, according to data from Dow Jones Market Data.
Key Market Drivers
President Trump’s comments about China were a significant focus for traders. In a Fox News interview aired Thursday night, Trump expressed a preference to avoid tariffs on China, signaling a softer stance than his earlier, more aggressive rhetoric. This shift, however, did not completely veer from his broader tone of holding a firm position on international trade relations.
Peter Cardillo, chief market economist at Spartan Capital Securities, described Trump’s approach as “less hawkish” on China. However, he noted uncertainty about whether this softened tone is part of a broader negotiating strategy. “Whether or not that’s just a bargaining tool…that’s yet to be seen,” Cardillo added.
Another key factor on traders’ minds is next week’s FOMC meeting, where no changes to the Federal Reserve’s main interest-rate target are expected, according to the CME FedWatch Tool.
Cardillo suggested that the Fed will likely maintain a “wait-and-see” approach, closely monitoring inflation trends and any price pressures that tariffs might create. He predicted that interest rates would remain on hold through the first quarter of the year.
Recent data released on Friday painted a mixed picture of the U.S. economy. Businesses appeared optimistic at the start of the year, signaling a positive outlook. However, inflationary pressures may be creeping back into the economy.
In contrast, the housing market showed signs of weakness, with existing-home sales in 2024 dropping to an annual pace of 4.06 million. This figure represents the lowest level of existing-home sales since 1995, highlighting challenges in the real estate sector.
The market’s attention is turning to the upcoming release of the personal-consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation. Scheduled for next Friday, the report is expected to provide critical insights into inflationary trends.
Cardillo noted that yields are unlikely to see a significant uptick unless the PCE index comes in higher than anticipated. A surprising result could push yields back to levels seen a week ago, underscoring the importance of inflation data in shaping bond market movements.
In summary, Treasury yields experienced minor fluctuations on Friday as market participants processed Trump’s comments on China and prepared for the FOMC’s upcoming meeting. While the Fed is expected to hold interest rates steady, upcoming economic data, particularly the PCE price index, could influence market expectations and yield trajectories in the near term.