FX.co ★ US 10-Year Yield Erases Surge

The yield on the 10-year U.S. Treasury note fell to around 4.16% on Wednesday, reaching its lowest level in three weeks. This decline was spurred by disappointing economic data that led to increased expectations for Federal Reserve interest rate cuts, despite indicators of rising term premiums on Treasuries. The U.S. GDP contracted at an annualized rate of 0.3% in the first quarter, contrary to predictions of a 0.3% expansion. This contraction was due to weaker consumer spending and a surge in imports, which mitigated the impact of tariffs, while both headline and core Personal Consumption Expenditures (PCE) prices rose more than anticipated. Furthermore, employment growth as measured by the ADP report declined significantly. In response, markets increased their bets on a total of 100 basis points in Fed rate cuts this year, up from the 50 basis points indicated by the latest Summary of Economic Projections (SEP). Simultaneously, the U.S. Treasury announced an increase in its borrowing plans for the second quarter, which exceeded expectations and contrasted with previous signals of lower deficits seen during the Trump administration. However, the issuance of longer-term Treasuries remained unchanged.