The decline in oil prices and dovish remarks from Federal Reserve officials boost rate cut bets, leading to a decrease in short-term U.S. Treasury yields
Due to the decline in oil prices and dovish comments from Federal Reserve officials boosting rate cut bets, U.S. Treasury prices rose, and short-term U.S. Treasury yields fell by 3 basis points to 3.83%. The market has fully priced in expectations for two rate cuts by the Federal Reserve before the end of the year, with a 25% probability for a third rate cut. The dovish remarks from Federal Reserve officials have drawn market attention, as Powell is set to present a monetary policy report to the House Financial Services Committee
According to the Zhitong Finance APP, due to the decline in oil prices and dovish remarks from Federal Reserve officials boosting bets on interest rate cuts, U.S. Treasury prices rose, with the yield on the two-year U.S. Treasury, sensitive to monetary policy, falling by 3 basis points to 3.83%. However, long-term U.S. Treasuries performed poorly, with the yield on the 30-year U.S. Treasury rising by 2 basis points to 4.89%.
The money market has fully priced in expectations for two interest rate cuts by the Federal Reserve before the end of this year, with a 25% probability of a third cut, up from 13% a day earlier; expectations for a rate cut in July have risen from zero a week ago to 20%.
On Tuesday, a ceasefire agreement between Israel and Iran after more than a week of conflict pushed oil prices lower, alleviating concerns among policymakers and the market about rising inflation. Market attention has turned to Federal Reserve Chairman Jerome Powell's semiannual monetary policy report testimony before the House Financial Services Committee later on Tuesday. Before Powell's testimony, several Federal Reserve officials recently made dovish remarks. Federal Reserve Governor Bowman indicated she might support a rate cut in July, echoing comments made by Federal Reserve Governor Waller last Friday. Subsequently, Chicago Fed President Goolsbee stated that inflationary pressures are not evident, which could lead the Fed to resume rate cuts.
Mohit Kumar, Chief European Strategist at investment bank Jefferies, stated in a client report: "We do not agree with the view that the Fed will cut rates in July, but we do believe that data should show signs of weakness over the summer, prompting the Fed to cut rates in September."
A number of Federal Reserve officials will speak intensively on Tuesday. In addition to Powell, six officials, including New York Fed President Williams, Boston Fed President Collins, and Federal Reserve Governor Barr, will also speak
