(Bloomberg) - Treasury bonds began in June at the back foot, with bond yields for 30 years testing the 5% level as concerns over President Donald Trump’s tariff policy surfaced at the beginning of a data-heavy week to assess the health of the world’s largest economy.
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The benchmark yield traded four to seven basis points across the curve and resumed the climb in a brief pullback, which was a weaker response to U.S. ISM manufacturing data in May, which was accompanied by higher prices. ISM is still in the contraction area below 50.
U.S. Treasuries (especially longer maturities) continue to face ongoing concerns about the U.S. fiscal outlook and continue to face pressure after the first drop in monthly declines in 2025 measured by the Bloomberg Index.
Longer bonds led to a decline on Monday, with 10-year debt yields rising by more than six basis points to nearly 4.47% meetings, while 30-year bonds briefly poked 5%. Five years ago and 30 years yields were in the 100 basis point whisker range, with its level last closed in 2021. The dollar scale is close to its lowest level since 2023.
"It is generally believed that the curve should be steep" ahead of U.S. job data, followed by 10- and 30-year treasury sales next week," said Tom Di Galoma, managing director of Mischler Financial Group.
Even if the long-term recovery is close to 5%, and near the peak of the cycle before 2007, large bond investors generally remain underweight and prefer shorter market areas near the five-year industry.
"Our strongest belief has been holding under-deficient long-term U.S. Treasury bonds," BlackRock Investment Research said in its latest weekly. In amidst ongoing deficits and ongoing inflation, asset managers are watching whether Congress passes a budget bill that could drive higher U.S. deficits and “affect foreign investors and increase maturity premiums even higher."
The weakness of longer bonds has briefly dropped 20-year yields below the weakness of 30-year, the most in nearly four years. The benchmark has been unpopular among investors since the recovery of 20-year bond sales nearly five years ago and traded at a discounted price with a yield of more than 30 years.
"We can certainly understand why Safe Haven Curves' long-term undenied," said Rabobank strategist, including Richard McGuire, who added that the U.S. policy prospects are too much to attract buyers' long-standing Treasury bonds.
This reflects the risk of the U.S. president further trading SALVO after Trump announced that tariffs on steel and aluminum would be increased from 25% to 50% to help protect American workers. He also said that China violated its trade agreement with the United States.
What does Bloomberg Strategist say...
“Buyers’ bond strikes combined with the inflation outlook on Monday mean that steep trade for investors has been a lasting trade since mid-April.”
- Alyce Andres, MLIV rate strategist, Chicago
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The labor market report to be on this week could play a key role in shaping the next steps in treasury yields and the Fed’s interest rate path. Now, traders expect a quarter-point rate to drop in 2025, which is down from the two-thirds expectations in early May.
U.S. President Jerome Powell did not comment on the prospects for interest rates, a Fed official spoke on Monday. Elsewhere, Chicago Fed President Austan Goolsbee said central banks could cut interest rates if trade policy uncertainties are addressed.
Dallas Fed President Lorie Logan said the U.S. central bank can keep patients because it assesses the risks of inflation and unemployment.
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