US Treasury yields set for monthly loss as markets wait on key Fed inflation data

Treasury yields stayed still on Friday while traders waited on fresh inflation figures and followed President Donald Trump’s ongoing legal push to keep his reciprocal tariffs alive. 

The numbers barely moved — the 30-year yield ticked up by less than a basis point to 4.927%, while the 10-year yield sat flat at 4.422%, and the 2-year held at 3.939%. But the lack of movement doesn’t mean the market’s calm.

The Federal Circuit Court of Appeals on Thursday sided with the White House, agreeing to freeze a ruling from a lower trade court that had overturned the reciprocal tariffs, which first kicked in back in April. That legal win came just hours before the Trump administration told the court it would go to the Supreme Court if the pause wasn’t granted.

Trump pushes tariffs, market waits for Fed

Trump’s team isn’t stopping with the courts. Officials are also working on a backup — using a section of the Trade Act of 1974 to roll out temporary tariffs up to 15% for as long as 150 days, The Wall Street Journal reported. That plan alone has added a new layer of stress to a market already dealing with inflation risk, weak data, and deficit fears.

And all of it is happening as Wall Street watches for the personal consumption expenditures (PCE) index, the Federal Reserve’s top inflation metric, which dropped Friday morning. Traders want a clear sign that spending and inflation are slowing, something that could boost the case for rate cuts later this year. Current pricing suggests around 50 basis points in cuts are expected by December.

But until then, Treasuries are heading toward their worst monthly performance this year. A Bloomberg bond index tracking US government debt fell 1.2% in May, as bond prices slipped and yields rose across all maturities.

It’s the third straight monthly climb for the 30-year yield — the longest since 2023. The 2-year and 10-year also posted their first monthly increases of 2025.

Investors are blaming Trump’s chaotic fiscal plans, especially his push for new tax cuts without offering a clear way to shrink the budget deficit. 

Bond traders brace for long-term Treasury risks

Despite the broader selloff, buyers came back in this week as yields stayed high and weak data made Treasuries more attractive. That relief may last if the PCE report and other numbers suggest slower growth. 

If that happens, the short end of the yield curve (particularly the 2-year) could rally hard. But the long end is still under pressure, thanks to the ballooning global supply of low-risk assets.

Over at Goldman Sachs, John Waldron said that investors are more spooked by US debt levels than by tariffs right now. He warned that the underlying fear is whether there will be enough demand to absorb all the bonds Washington keeps issuing.

At Citigroup, Dirk Willer and his team think the term premium — the extra payment buyers demand for holding long-term bonds — is likely to rise another 50 basis points over the next year. It already hit a 10-year high earlier this month, showing the growing discomfort with locking in money for the long haul.

Henry Neville, a portfolio manager at Man Group, has been tracking how far real-world yields on the 10-year diverge from what’s considered their fair value. That gap has shrunk a lot. Since 2020, the average spread has been about 150 basis points, the narrowest in any decade since the 1960s. And between May 2023 and July 2024, the gap stayed under 100 basis points for 15 months straight, a record-setting streak.

“Persistent readings below 100 are for me the key tell that the dollar and dollar assets may be losing their luster,” Henry wrote in a note on Friday. If that trend holds, domestic buyers will have to pick up the slack as foreign interest cools.

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