Jerome Powell's hawkish stance leads to US treasuries falling

US Treasuries fell Thursday, snapping a three-day rally, as traders reduced expectations of interest-rate cuts following Federal Reserve Chair Jerome Powell’s hawkish remarks on inflation.

The yield on the benchmark 10-year note climbed to 4.30%, erasing much of Wednesday’s gains. Yields across the curve rose, with the five-year yield briefly up six basis points to 3.96%, while the two-year touched 3.82%.

Powell reiterated the central bank’s focus on combating inflation, warning that tariffs could contribute to a longer-lasting rise in prices. “Powell delivered the clearest message since ‘Liberation Day’ yesterday, which was unquestionably hawkish,” ING strategist Francesco Pesole said.

Although Treasuries had initially gained after Powell’s comments, the tone of his message — and a rebound in global risk sentiment from US-Japan trade developments — shifted the focus back to inflation risks.

In a Truth Social post Thursday, President Donald Trump again criticised Powell, saying his “termination can’t come quickly enough” and that the Fed should have already cut rates. The Fed operates independently of the White House.

Money markets are now pricing in around 88 basis points of rate cuts in 2025 — the equivalent of three quarter-point cuts and a 50% chance of a fourth — slightly lower than earlier in the week.

RBC BlueBay Asset Management CIO Mark Dowding said the Fed may feel constrained in taking any near-term action. “The combination of rising prices and stalling growth will probably mean that the Fed feels it can do nothing in terms of monetary policy,” Dowding said, noting Powell’s attention to his legacy.

Dowding added that US inflation could climb to 4% due to tariffs, a trend potentially worsened by a weakening US dollar.

Despite this week’s selloff, some analysts see signs that Treasuries are regaining their traditional role as safe-haven assets. “It’s at least reassuring that Treasuries traded as they ‘should’,” said Michael Brown of Pepperstone.

He cautioned, however, that investor reluctance to hold US assets could still lead to further declines. “Yesterday’s move will at least allay some concerns over the dislocations seen last week,” he said.

Markets now turn to US jobless claims data for the week ending 12 April, expected to show labour market resilience and further guide bond direction.