US government debt wiped out its early losses on Monday after Fed Governor Michelle Bowman said she could support a rate cut in July if inflation remains subdued, echoing comments by Christopher Waller on Friday. That pushed yields lower across maturities, with the benchmark 10-year rate down six basis points to 4.31%, the lowest level in just over a week.
Traders, meantime, boosted their bets that the Fed will lower rates by at least 50 basis points before the end of the year, with a roughly 20% probability of a reduction in July. Markets are pricing in a September move as more likely.
Earlier in the session, Treasuries had fallen alongside other global bonds as the escalating conflict in the Middle East stoked fears of an oil-supply disruption that would fan inflation. Oil, though, has since slipped as fears faded that the conflict with Iran would immediately disrupt supplies from the Middle East. That’s helped European government debt to since follow Treasuries higher.
Yields on two-year Treasuries, most sensitive to the Fed’s monetary policy, are lower by eight basis points to 3.82%. The dollar also reversed, wiping out early gains to trade little changed.
Those moves came as Bowman said in a speech at a conference in Prague that she would support lowering rates at the next meeting as long as “inflation pressures remain contained.” Confirmed this month to serve as the central bank’s vice chair for supervision, she also said the “time has come” to revisit the current approach to leverage ratio requirements amid concerns the rule has constrained lenders’ trading in the $29 trillion Treasuries market.On Friday, Waller said the central bank could cut next month, reiterating his view that any inflation hit from tariffs is likely to be short-lived. Bloomberg Economics puts Bowman among the Fed officials who are considered neither a dove nor a hawk, while Waller is classified as the most dovish policymaker.