Treasury yields end lower for first time in three sessions as Fed chair cites improving pace of inflation

By Vivien Lou Chen

Yields on U.S. government debt finished lower on Tuesday after Federal Reserve Chair Jerome Powell said the U.S. might be back on a disinflationary path, but that officials need greater confidence before they can lower interest rates.

What happened

The yield on the 2-year Treasury BX:TMUBMUSD02Y fell 3.3 basis points to 4.737%, from 4.770% on Monday. Monday's level was the highest for the 2-year yield since June 11, based on 3 p.m. Eastern time figures from Dow Jones Market Data. The yield on the 10-year Treasury BX:TMUBMUSD10Y dropped 4.3 basis points to 4.435%, from 4.478% on Monday. The yield on the 30-year Treasury BX:TMUBMUSD30Y declined 3.5 basis points to 4.607%, from 4.642% on Monday.Monday's levels were the highest for 10- and 30-year yields since May 31.

What drove markets

In a panel appearance at the European Central Bank forum in Portugal, Powell said recent readings on U.S. inflation are much lower than a year ago and there are signs that a disinflationary trend is unfolding. Read: Powell says inflation is showing signs of resuming cooling trend"We've made quite a bit of progress in bringing inflation back down to target," he said, but added that officials want to be more confident before reducing the Fed's interest-rate target. Powell also said Fed officials have the ability to take their time and "get this right," and that they are looking at two-sided risks if they cut either too soon or too late. He declined to say when the U.S. central bank might deliver its first rate cut.Powell appeared on Tuesday's panel with ECB President Christine Lagarde and Roberto Campos Neto, head of Brazil's central bank. Meanwhile, data released on Tuesday showed that the number of job openings in the U.S. rose to 8.1 million in May from 7.9 million in April, a sign there is plenty of demand for labor.

Tuesday's decline in Treasury yields comes after a day after the yield on the 10-year note rose to its highest closing level in about a month as traders shrugged off softer-than-expected manufacturing data and expressed concerns about a possible Donald Trump victory in November's presidential election.

Investors have been wary that wider budget deficits are likely whoever wins the election. With former President Trump leading in the polls, market participants are also concerned that his proposed imposition of 10% duties on all imports and minimum 60% tariffs on Chinese goods will stoke inflation, making bonds less attractive.

-Vivien Lou Chen

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07-02-24 1543ET

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