US yields steady ahead of Fed, 10-year auction as US Dollar slips
- US 10-year yield flat after recent surge; Treasury to auction $39B in 10s, $22B in 30s later this week.
- DXY dips 0.31% to 99.47, failing to follow yields higher amid widening trade deficit and Fed caution.
- Markets price in July Fed rate cut and two more by year-end; eyes on Powell’s post-FOMC guidance.
The US 10-year Treasury yield trades subdued on Tuesday as market participants await the Federal Reserve’s last monetary policy meeting on May 7. Furthermore, investors are also eyeing the demand for the 10-year T-note auction at 13:00 ET.
10-year yield holds at 4.345% before $39B auction; DXY falls, boosting Gold past $3,400 as markets await Powell's tone
The US Treasury will sell $39 billion of the 10-year bond. On Thursday, the Treasury will auction $22 billion of 30-year bonds.
The US 10-year Treasury bond yield remains at 4.345% after soaring over fifteen basis points (bps) during the last three trading sessions, lifting the coupon from around 4.19%. Nevertheless, it failed to underpin the Greenback, which remains under pressure, as portrayed by the US Dollar Index (DXY).
The DXY, which tracks the buck's performance against a basket of six currencies, edged down 0.31% to 99.47.
Subdued US yields and a weaker US Dollar have pushed Gold prices higher. The yellow metal is at a brisk of clearing the $3,400 mark once more as it registers gains of over 1.85%.
On the data front, the US Balance of Trade revealed that the deficit widened in March, dragging the Gross Domestic Product (GDP) figures negative for the first quarter of 2025.
In the meantime, market players are awaiting the Federal Open Market Committee (FOMC) meeting on Wednesday. Policymakers are expected to keep rates unchanged due to fears that tariffs are inflation-prone.
Following the meeting, traders will watch Fed Chair Jerome Powell's press conference, which could set the stage for the next Fed move.
The swaps markets show traders predicting the Fed’s first rate cut in 2025 to be on July. They are also pricing in another two 25 basis points (bps) of easing towards the end of the year.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.