Jerome Powell

The wagers reflect the potential for monetary policy easing to gather pace after chair Jerome Powell's term ends in May.

The moves come despite Fed officials including Michael Barr voicing caution on lowering borrowing costs again in December given inflation is still above target.

While the Federal Reserve delivered a quarter-point rate reduction as expected, Powell said another by year-end is not a given.

Yields on 10-year notes rose two basis points to 3.99% after falling the previous two sessions, while monetary policy-sensitive two-year notes held steady around 3.49% Wednesday morning.

The department has been increasing the supply of bills — Treasury securities that mature in a year or less — in a way that means the federal government needs to carry a larger checking-account balance.

Treasuries have rallied since the flare-up in trade talks prompted renewed demand for U.S. government debt as a haven.

After an apparent truce, the US and China are back to making tit-for-tat trade swipes. Market participants are fretting more about the potential impact on growth than how the protectionist measures will affect inflation.

Bank reserves fell by about $21 billion to $2,999.7 trillion in the week through Sept. 24, according to Fed data released on Thursday. That's the lowest level since the week through Jan. 1.

Most economists say the solution lies in borrowing less, via some combination of lower spending and higher taxes — rather than leaning on the Fed to make borrowing cheaper.

Traders boosted wagers on a quarter-point cut next month, pricing in a roughly 85% chance of a move, up from around 65% before Powell spoke.

Traders were watching a slew of data on a bigger-than-expected increased in jobless claims and expanded manufacturing Thursday.

In minutes from the Fed's July meeting, officials highlighted the risks of inflation outweighing concerns over the labor market, which investors overlooked.

Hopes that the U.S. will reach other trade deals ahead of its self-imposed Aug. 1 deadline are mounting.

U.S. assets whipsawed Wednesday by reports Trump was preparing to fire Powell, with shorter tenors rallying on the prospect that could lead to faster interest-rate cuts.

The recent rally was driven by economic data that reinforced wagers on at least two rate cuts this year, as well as speculation President Donald Trump will name a more dovish successor to Jerome Powell.

Yields across maturities declined, with those on two-year notes falling five basis points and most reaching the lowest level in more than a month.

Some allies of the president have pushed for Treasury Secretary Scott Bessent to get the job, according to people familiar with the matter, a notion that a senior administration official disputed.

Bond investors are on alert for hints on when the Federal Reserve will deliver the two 2025 interest-rate cuts officials projected at their latest policy meeting.

Powell said as policymakers look for more clarity on tariff policies, the risks of higher inflation and unemployment have increased due to President Donald Trump's sweeping levies.

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.