FX.co ★ Treasuries Move Back To The Upside After Powell Speech

Treasury bonds experienced a notable upward movement on Friday, partially recovering from the significant decline observed in the previous session.

Bond prices climbed early and maintained strong gains throughout the day. Consequently, the yield on the ten-year benchmark note, which inversely correlates with its price, decreased by 5.5 basis points to 3.807 percent.

This movement partially counteracted Thursday's 8.4 basis point rise, although the yield remains above the more than one-year low closing observed on Wednesday.

The recovery in Treasuries followed Federal Reserve Chair Jerome Powell's highly awaited remarks, which appeared to affirm expectations that the central bank is poised to commence lowering interest rates.

"The time has come for policy to adjust," Powell remarked at the Jackson Hole Economic Symposium, though he stated, "the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

Powell’s assertion that it is time for the Fed to begin cutting rates is grounded in growing confidence that inflation is returning to a sustainable path towards 2 percent.

Federal Reserve officials have consistently indicated that they require "greater confidence" that inflation is sustainably heading towards the 2 percent target before considering rate cuts.

Powell pointed out that inflation is now much nearer to the Fed's target, with consumer prices rising by 2.5 percent year-over-year in July. He also mentioned that progress towards the 2 percent goal has resumed after earlier stagnation this year.

His comments followed recent inflation data enhancing confidence that the Fed will reduce interest rates at its upcoming monetary policy meeting in September.

"Chair Powell just rang the bell to start rate cuts," stated MBA SVP and Chief Economist Mike Fratantoni. "He noted that incoming data will inform the pace of cuts, but a cut is coming in September, and this will be the first in a series expected to lower the federal funds target significantly over the next 18 months."

The CME Group's FedWatch Tool indicates a 65.5 percent probability of a quarter-point rate cut at the September 17-18 meeting and a 34.5 percent chance of a half-point cut.

Minutes from the Fed's late July meeting, released on Wednesday, showed that the "vast majority" of participants thought it would "likely be appropriate" to lower rates at the next meeting if inflation data met expectations.

In U.S. economic news, the Commerce Department reported a considerable increase in new home sales in July.

New home sales surged by 10.6 percent to a seasonally adjusted annual rate of 739,000 in July, following a 0.3 percent increase to a revised rate of 668,000 in June.

Economists had projected a 2.1 percent rise to an annual rate of 630,000 from the initially reported 617,000 for the prior month.

This significant surge pushed new home sales to their highest annual rate since reaching 741,000 in May 2023.

Looking ahead, reports on durable goods orders and consumer confidence are likely to draw attention early next week, while a report on personal income and spending is expected to be a focal point later in the week, as it includes inflation measures preferred by the Federal Reserve.