(Bloomberg) -- Treasuries gained as a fresh spate of economic data offered signs of ebbing economic activity and dimming inflation, supporting bets that the Federal Reserve will cut interest rates twice this year.
The advances pushed yields on US government debt lower on Thursday, and traders maintained their wagers on about 50 basis points of easing from the US central bank in 2025. The dollar extended its early losses, while US share prices were lower.
Government debt was whipsawed by a slew of block trades, including a large sale of Ultra Bond futures that sent the 30-year cash Treasury yield to nearly 5% for the first time since April before quickly retreating. Overall, the softer tone of the economic data biased most traders to purchase, with the shorter maturities most desired. Investors have been increasingly wary of buying long-term securities given concern about the US fiscal trajectory.
"Bad news is good news for the bond market in the sense that weak retail sales and falling PPI could be signs of a weaker economy that may allow the Fed to cut sooner than we currently anticipate,"said Zachary Griffiths, head of investment-grade and macroeconomic strategy at CreditSights Inc.
Prices paid to US producers unexpectedly declined in April by the most in five years, suggesting companies are absorbing some of the hit from higher tariffs. Meanwhile, growth in US retail sales decelerated notably as consumers pulled back spending on imported goods amid concerns about rising prices from tariffs.
"Taken as a whole, today's US data — retail sales, jobless claims and PPI, among others — came slightly on the softer side," said Valentin Marinov, head of G-10 research and strategy at Credit Agricole.
Two-year yields, most-sensitive to Fed policy, slid as much as 8 basis points to 3.97%, while the benchmark 10-year yield dropped five basis points to 4.48%.
While swaps traders were fully pricing in the Fed's first reduction for October, the odds in the market were still strong for a move in September. That's well ahead of many Wall Street economists who pushed out their forecasts for the next cut after recent cooling in US-China trade tensions.
In the meantime, Republican lawmakers' draft plan for sweeping tax cuts has been moving ahead this week, sparking renewed focus on the US fiscal trajectory, with the package estimated to worsen the deficit and lift the debt load.
Jamie Dimon, chief executive officer of JPMorgan Chase & Co., said in a Bloomberg Television interview Thursday that the US deficit and debt load is an issue.
"It creates risk of inflation to me. It creates risk of higher long-term rates," Dimon said at JPMorgan's annual Global Markets Conference in Paris. That might slow down growth and create a stagflation scenario, he added.
In prepared remarks on the Fed's framework review, Fed Chair Jerome Powell held off on providing insights on the near-term outlook for monetary policy. Last week, the Fed opted to hold rates steady while it waits for further evidence on the strength of the economy.
--With assistance from Aline Oyamada and Edward Bolingbroke.
(Updates rates throughout, adds strategist comments.)
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