(Bloomberg) -- US Treasuries sank as investors took job market data and a US-UK trade framework as reasons to embrace riskier assets and pare back their bets on interest-rate cuts.
The declines on Thursday pushed two- to 10-year yields higher by at least 10 basis points on the day after President Donald Trump urged people to buy stocks based on the latest trade developments. Yields on 30-year bonds were up about eight basis points to 4.85% after an auction was met with tepid investor demand.
"The hard data has not yet followed the soft data. A trade deal is done. Risk appetite is better. The Fed is in no hurry," said George Catrambone, head of fixed income at DWS Americas. Because of all that, "some of the rate-cut expectations have walked themselves out of the market."
Swaps priced in a 15% chance of a quarter-point rate cut at the next Federal Reserve meeting in June, compared to about 30% on Tuesday and more than 50% a week ago. Markets see barely three reductions this year, which would bring rates to a range of 3.5% to 3.75%. At the end of April, four rate cuts were fully priced in.
Short-term yields had already been rising as traders pared bets on cuts. Chair Jerome Powell said Wednesday the Fed wasn't in a rush to lower borrowing costs. Officials voted unanimously to keep the benchmark federal funds rate in a range of 4.25% to 4.5%, where it has been since December.
In a statement, policymakers said they see a growing risk of both higher inflation and rising unemployment. Still, Powell said the labor market remains resilient amid the trade uncertainties — which was reinforced Thursday by a drop in the weekly tally of new jobless.
"The idea of preemptive cuts is not on the table, which means they may end up being a little bit late to whatever happens," said David Rogal, portfolio manager, fundamental fixed income group at BlackRock. "There's just a lot of uncertainty in both directions."
On Thursday, the S&P 500 rose after Trump touted what he described as a comprehensive trade agreement with the UK, marking the first of his promised deals with countries around the world. The Bloomberg Dollar Spot Index rose by 0.7%, the biggest jump in over a month.
Trump criticized the Fed's policy stance again on Thursday, saying there's virtually no inflation in the US and that Powell "doesn't have a clue." The president has been calling for the central bank to lower rates to boost the economy, and has even suggested he could remove the Fed Chair before the end of his term.
"Powell definitely gave a whiff of sort of stagflationary risks, but because of the political noise around it at the moment, he was very careful not to say anything inflammatory," said Neil Sutherland, portfolio manager at Schroder Investment Management. "It's really difficult for them to make a big call one way or the other."
Pimco's Chief Investment Officer Dan Ivascyn said in an interview with the Financial Times that the probability of a US economic recession is the highest it's been in a few years. The firm has made small increases to its Treasury holdings over the previous two months, focusing on short maturities.
--With assistance from James Hirai and Anya Andrianova.
(Updates yield levels.)
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