Treasuries Rise, Erasing Weekly Loss, on Signs Economy Cooling

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(Bloomberg) — Treasuries edged higher on Friday and posted a small weekly gain after survey data showed signs of a cooling U.S. economy.

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Yields were at least two basis points lower and short maturities were off about four basis points after a surprise decline in the S&P Global services index and a downward revision to the University of Michigan sentiment gauge, both for January left Treasury yields slightly lower in a week that began with the inauguration of Donald Trump and a second non-consecutive presidential for a period of time.

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The data reinforces the view that the Federal Reserve, which meets Jan. 28-29, will cut interest rates at least once this year, as early as June, after cuts at each of its last three meetings.Bonds also benefited from Trump’s lack of immediate action to impose tariffs on imports , though he said he intended to do so.

“With a data-driven Fed, the market is hyper-focused on every economic release,” said Christian Hoffman, portfolio manager at Thornburg Investment Management. Meanwhile, “politics will continue to be the main driver of volatility and uncertainty.”

Money markets and economists polled by Bloomberg are unanimous in expecting Fed Chairman Jerome Powell and his colleagues to keep the US overnight rate target range of 4.25% to 4.5% next week.Looking ahead, rate swaps now contribute to a reduction of two quarter points by the end of the year. Only one was expected a week ago.

Bonds began to sell off in September, pushing 10-year yields to a 14-month high of 4.8% earlier this month, reflecting concerns that trade protectionism could weigh on inflation a comment the next day that a mid-year rate cut was possible stopped the bleeding.

Shorter-term Treasury yields, which are more sensitive than long-term ones, moved the most this week, with the 10-year yield up 36 basis points from two years ago.Treasuries Data from open interest futures shows that investors expect a further sharp rise in the curve.