Bond investors enter a frenetic week comprising the latest Treasury view on quarterly debt sales, a Federal Reserve meeting, and plenty of data crowned by the July jobs report.
With four trading days left in July, the Treasuries market is on course for only its second negative month this year, as investors have reduced rate cut expectations and pushed yields higher across all maturities amid a string of resilient data reports.
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Traders price no prospect of a US rate shift this week, and continue to lean toward a quarter-point reduction at the Fed's meeting in mid-September, with around 100 basis points of easing seen over the next 12 months. At this week's Fed meeting, focus on whether some officials dissent over the central bank staying on the sidelines, while traders will closely monitor chair Jay Powell's press conference amid the pressure from the White House for immediate rate cuts.
The pricing of rate cuts may well shift at the end of the week, with the release of the July employment report and other key labor and inflation data that could well influence the Fed's path and market performance for the rest of the year.
US 10-year yields were two basis points lower at 4.37% at 5:45 a.m. New York time, while two-year peers which tend to be more sensitive to changes in monetary policy fell by a similar amount.
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Molly Brooks, US rates strategist at TD Securities gauges the employment data "as the top driver here," as consensus estimates for headline jobs has been slipping "so we could see that being a key event for the market to react to concerns on growth and the labor mandate slowing."
As for the Fed meeting, Brooks said they "are expecting Governors Bowman and Waller to dissent" and "we could also see a modest bullish response in rates there. Given their recent sentiment, we don't think the market will be too shocked, but a dissent will still show a deliberate action there."
Also in focus will be how Treasury plans to address the financing of large US deficits over the next quarter and into 2026. Traders expect issuance of Treasury bills will expand and gauge to what extent Treasury uses buybacks to reduce older debt issues and bolster overall market liquidity. The bond market also has a compacted late month auction schedule with two-, and five-year notes being sold on Monday as the month ends Thursday.
