U.S. Treasury yields slip as Fed signals just one rate cut in 2025
U.S. Treasury yields slipped early Tuesday after the U.S. Federal Reserve signaled just one rate cut in 2025.
The 30-year Treasury yield slipped almost 3 basis points after briefly surging past 5% on Monday.
The 10-year yield dipped 2 basis points to 4.455% at 1:50 a.m. ET, and the 2-year Treasury yield shed slightly over 1 basis point to 3.97%.
One basis point is equivalent to 0.01%, and yields and prices move in opposite directions.
Last Friday, Moody's Ratings lowered the U.S. credit rating to the second-highest tier, following in the footsteps of S&P Global Ratings and Fitch, which did so in 2011 and 2023, respectively.
The downgrade from Aaa to Aa1 by Moody's is "admittedly significantly dire," said Vishnu Varathan, head of macro research at Mizuho Securities. But the move is "inconsequential" for markets, he wrote in a note.
Though the resultant jolt in yields may clip already tentative market optimism, the downgrade is unlikely to crush the broader recovery, he added.
The downgrade has no adverse impact on the liquidity and collateral value of U.S. Treasurys, and hence no "imminent shock" from forced liquidation, Varathan said.
"Above all, there are no triple-A alternatives for markets that are sufficiently deep and liquid to threaten the reserve asset status of USTs that is tagged to the U.S. Dollar's global reserve currency status," he added.
In April, U.S. Treasury yields surged after U.S. President Donald Trump introduced broad "reciprocal tariffs" targeting foreign trade partners. Concerns over a potential financial panic and higher consumer borrowing costs led the administration to scale back the most aggressive tariffs.
On top of that, Atlanta Federal Reserve President Raphael Bostic told CNBC on Monday he's leaning toward just one interest rate cut this year, as the central bank seeks to strike a balance between containing inflation risks and avoiding an economic downturn.
Although the Fed's March projections indicated two 25-basis-point cuts in 2025, Bostic noted that the impact of tariffs has been more significant than anticipated.
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