Bond investors anticipating the Fed will hold rates steady again

Bond investors anticipating the Federal Reserve (Fed) will hold interest rates steady again this week, are moving away from longer-dated Treasuries as they temper expectations for an aggressive easing given the lower chance of a US recession.

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Their flight away from the long end of the curve also reflects worries about President Donald Trump's tax and spending bill, which is being considered by the US Senate.

On Wednesday, the US central bank's policy-setting Federal Open Market Committee is widely expected to keep its benchmark overnight interest rate in the 4.25 per cent-4.50 per cent range at the end of a two-day meeting, as it tries to grapple with a mercurial Trump administration trade policy that could still boost inflation in the second half of the year.

But soft consumer and producer price readings in May, which so far have yet to show the effects of higher tariffs on inflation, have fanned expectations that the Fed could resume cutting rates soon.

Futures tracking the Fed's policy rate show higher odds that the central bank will deliver a pair of back-to-back rate cuts starting in September.

Before the release of the latest inflation numbers, the market had priced in a cut in September followed by another one in December. The Fed reduced rates three times in 2024 before pausing its easing cycle early this year.

“I don't necessarily want to go long duration,” said Victoria Fernandez, chief market strategist and fixed income portfolio manager at Crossmark Global Investments in Houston.