(Bloomberg) -- US Treasuries slipped ahead of a series of government bond auctions this week, pulling back from the rally unleashed Friday when Federal Reserve Chair Jerome Powell indicated that interest rate cuts may come as soon as next month.
Yields were up by one to three basis points across tenors Monday morning in New York, with the benchmark 10 year's rising to about 4.28%. The market tracked a similar move in European government bonds, led by France, where 10-year yields were up seven basis points as the prime minister said he would call for a vote of no confidence on Sept. 8.
The US pullback ate away at some of the gains that came when Powell used his speech at Jackson Hole, Wyoming, to indicate a rate cut may be warranted to support the labor market. In response, traders increased wagers on a reduction at September's meeting and Wall Street strategists said to expect a steeper yield curve — a typical reaction to a more dovish Fed.
Some strategists, however, warned that any move will depend on upcoming releases on inflation and the labor market.
Fed officials "are going to keep a very, very close eye on the data," Gennadiy Goldberg, head of US rates strategy at TD Securities, told Bloomberg Radio. "This cutting cycle breaks the mold of most cutting cycles."
Even with Powell's pivot, there's the possibility of a repeat of last year, when the Fed started easing policy, only to stop in January when the economy kept exhibiting surprising strength.
Futures traders don't see a quarter-point cut at its Sept. 17 interest-rate decision as a sure thing, pricing in the odds at around 80%. They are pricing in two cuts by the end of the year.
This week, demand for Treasuries will get a fresh test as the government holds auctions for a combined $183 billion of two-，five- and seven-year notes, with the first sale scheduled for Tuesday.
On Friday, investors will also get a read on inflation when the personal consumer expenditure index — which is the Fed's favored inflation gauge — is released for July.
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