US short-dated bonds yields fell to their lowest levels in more than three months, reflecting conviction among traders that the Federal Reserve will cut interest rates in September.
The two-year yield, among the most sensitive to changes in monetary policy, fell about two basis points to 3.65%, the lowest level since May 1. It’s down about 30 basis points since July 31, before tumbling on weaker-than-expected July employment data released the next day. The five-year note’s yield also reached the lowest level since May 1.
The gains have been underpinned by expectations that Fed officials will lower borrowing costs for the first time this year at their September meeting — a move that President Donald Trump has repeatedly demanded. Treasury Secretary Scott Bessent added to that call on Wednesday, suggesting that a 50 basis point move could be appropriate.
Interest-rates swaps are now nearly fully pricing in a quarter-point move next month, with some traders piling into bets on it being 50 basis points.
“One of the strategies they are doing is to shift the window to what is acceptable,” Henry Allen, macro strategist for Deutsche Bank AG, said in an interview with Bloomberg TV. In contrast to the large moves that Bessent and Trump are calling for, “suddenly a 25 basis point rate cut seems fairly modest and achievable.”
A fresh spate of economic data later Thursday, including producer prices and initial jobless claims, will offer further evidence on the health of the US economy.
The 10-year yield has fallen to around 4.21%, about 15 basis points lower since late July. It declined nearly three basis points Thursday.
