US Treasury Rally Pauses With $125 Billion Of Bond Sales Due

US Treasuries halted Friday’s rally as traders braced for a hefty slate of bond sales this week.  

The yield on 10-year debt rose one basis point to 4.22%, trimming the steepest drop in a year on Friday. The two-year yield was steady after falling the most since 2023.

The biggest week for sales of longer government bonds since May could weigh on prices as the Treasury offers $125 billion of new three-, 10- and 30-year notes. For now that’s put on hold Friday’s surge, which was triggered by surprisingly weak US jobs data and fresh speculation Federal Reserve Chair Jerome Powell will be replaced by someone more willing to aggressively cut interest rates.

Money markets assign around an 85% chance the Fed will lower rates by a quarter-point in September, according to swaps tied to policy-meeting dates. While that’s down from Friday’s peak of 90%, it’s much higher than the 40% anticipated before the payroll data was published. 

“Markets are signaling that the Fed will have to look through any tariff-induced price rises and that a September cut is imminent,” ING Groep NV strategists including Benjamin Schroeder wrote in a note. “The curve can steepen significantly more from here if that narrative strengthens.”

The market ructions at the end of the week came as traders reacted to the jobs-data shock. After Wednesday’s Fed decision to hold interest-rates steady, they’d been cautious about betting on more cuts, especially after comments from Powell citing continued uncertainty around tariffs and inflation.

Adding to Friday’s turnaround was the early exit of Fed Governor Adriana Kugler — potentially giving Trump the opportunity to appoint a low-rates loyalist instead. Trump said Powell should follow Kugler’s example and resign, ratcheting up his feud with the central bank chair.

The bond rally has turned into a payoff for some investors who had bet the gap between short- and long-dated debt would widen.

The yield premium on 30-year notes over five-year counterparts jumped 14 basis points Friday — the most since the 2023 banking crisis — to 106 basis points, where it remains currently. 

Yields on German and UK peers fell four basis points to 2.64% and one basis point to 4.52% respectively on Monday.