According to Bloomberg, the US Treasury market is on track for its strongest weekly gain this month due to economic uncertainties reinforcing expectations for interest rate cuts.
A measure of US government debt by Bloomberg has increased by 0.5% this week, marking a 2.7% increase for the year, the best start since 2022. This rise comes after the Federal Reserve's March meeting, where Chair Jerome Powell highlighted uncertainties surrounding the economic outlook.
Traders are factoring in approximately 70 basis points of rate cuts by the end of the year, suggesting expectations for two quarter-point cuts in 2025 with a third cut fully anticipated by January 2026.
There is a prevailing belief that inflation is temporary and if the economy weakens, Powell will not hesitate to lower rates, possibly implementing three cuts this year, as suggested by Gang Hu from Winshore Capital Partners.
Bond investors who have been favoring Treasuries recently found validation in Wednesday's Fed policy remarks, which revised growth projections downward and emphasized the uncertain outlook, leading to increased demand for safe havens like the US dollar and Treasuries.
The market indicates heightened concerns about downside risks, such as economic slowdown, rather than potential upside risks from tax changes and deregulation, according to Priya Misra, a portfolio manager at JP Morgan Asset Management.
Ten-year yields decreased by around 10 basis points over the week to 4.2%, nearing lows for the year. Open interest in 10-year note futures rose for a seventh consecutive session, indicating traders are taking on new long positions.
Some recent trading activities involve Treasury options, including a trade aiming for a decline in the 10-year yield to about 3.8% by late April.
On Friday, yields varied, with shorter-term yields falling further while longer-maturity yields slightly increased. This movement widened the spread between two- and five-year yields and the 30-year yield to almost 60 basis points, the largest gap since September.
Bloomberg Intelligence strategists, led by Ira Jersey, mentioned on Friday that the 10-year note's yield could potentially return to 4%, last seen in October, if employment data fails to meet expectations.