Q3 Faces Nearly $500 Billion New Debt "Deluge"! Survey: Even With Rate Cuts, US Treasuries May Struggle to Rise

According to a survey of bond strategists, while short-term US Treasury yields have recently declined due to expectations of Fed rate cuts, long-term yields are expected to edge higher in the coming months amid tariff-driven inflation concerns and a flood of new debt supply. This suggests that even with potential rate cuts, Treasury prices may struggle to gain traction...

Market data shows that since mid-July, both two-year and 10-year Treasury yields have fallen by about 25 basis points. Most of this drop occurred after the early August nonfarm payrolls report, which sharply revised down prior months' job figures—ultimately leading to Trump's unprecedented dismissal of the Bureau of Labor Statistics chief.

Current market pricing suggests a September Fed rate cut is almost certain. Due to concerns about labor market weakness and growing fears of political interference in Fed policy, interest rate futures now anticipate at least two rate cuts by year-end.

As of Monday, the 10-year Treasury yield stood at around 4.28%. The median forecast from a survey of nearly 50 bond strategists conducted between August 6-11 projects this benchmark yield to rise slightly to 4.30% in three months, hovering near this level by January and a year from now.

"As we’ve seen, markets are inclined to price in downside surprises in growth and labor markets, expecting further Fed cuts. But we’ve been reluctant to embrace this view—in fact, we’ve actively disputed it," said Jean Boivin, head of the BlackRock Investment Institute.

Boivin noted, "In the current environment, the Fed will have an easing bias—wanting and intending to cut—but its ability to do so will be constrained because inflation, the critical piece of the policy puzzle, won’t cooperate as expected."

Indeed, while many market participants believe soaring US tariffs—now at their highest since the Great Depression—will only temporarily boost inflation, others worry that with inflation already well above the Fed’s 2% target, it may prove more persistent. Tonight’s upcoming CPI data is expected to show US inflation rose further in July.