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Bond market still in wait-and-see mode on tax, spending

bill

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Treasury's Bessent sees lower rates because of tame

inflation

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Bessent says Fed made "gigantic" mistake in 2022

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Fed fund futures almost fully price in September rate cut

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Quarterly milestone for 10-year yield shows increase

(Adds new comment, milestones on Treasury yields, updates

prices,)

By Gertrude Chavez-Dreyfuss

NEW YORK, June 30 (Reuters) - U.S. Treasury yields fell

on Monday, with investors focused on this week's slew of

economic data amid rising expectations of a quicker pace of

monetary policy easing by the Federal Reserve this year.

President Donald Trump's sweeping tax-cut and spending bill

narrowly advanced over the weekend in a procedural vote to open

debate on the proposed legislation, but so far reaction in the

bond market has been muted.

U.S. Senate Republicans on Monday will try to pass the bill

despite divisions within the party about its expected $3.3

trillion hit to the nation's debt pile. They are poised for a

marathon session in which the minority Democrats are allowed to

offer an unlimited number of votes.

With the tax and spending bill still up for debate in the

Senate, bond investors are focused on a data-packed calendar

this week led by Thursday's nonfarm payrolls report. A Reuters

poll showed that economists expected 110,000 new jobs in June,

down from 139,000 in May. The unemployment rate was expected to

have crept higher to 4.3%, from 4.2% last month.

The market is also paying close attention to Fed policy given

the dovish tone from some Fed officials in recent weeks, notably

Fed Governor Christopher Waller and Fed Vice Chair for

Supervision Michelle Bowman. Both have touted the possibility of

a Fed rate cut at next month's policy meeting.

U.S. President Donald Trump wrote Fed Chair Jerome Powell

urging him to

lower interest rates

, White House press secretary Karoline Leavitt told

reporters on Monday. Trump believes interest rates should be

lowered to about 1%, she said.

"The administration is really committed to lower rates,"

said Tom di Galoma, managing director of rates and trading, at

Mischler Financial, in Park City, Utah.

"They will make it viable (for) interest rates to fall by

doing this thing with the banks and their SLR (supplementary

leverage ratio)," referring to Fed action on bank regulations.

Last week, the Fed

voted to approve

a proposal that would overhaul how much capital large

global banks must hold against relatively low-risk assets, as

part of a bid to boost participation in U.S. Treasury markets.

The plan would reform an enhanced SLR so that the amount of

capital banks must set aside is directly tied to how large a

role each firm plays in the global financial system.

Easing SLR rules will likely trigger a massive round of

buying in U.S. Treasuries from major U.S. banks, pushing yields

lower.

MONTHLY, QUARTERLY MILESTONES

In afternoon trading, U.S. 10-year yields fell 4.9 basis points

(bps) to 4.234% after earlier dropping to its lowest

since early May. The benchmark yield was up 43 bps for the month

of June and 74 bps for the second quarter, which put it on track

for the biggest rise since the quarter ending in December

U.S. 30-year yields declined 5.5 bps to 4.792%. On

the quarter, the 30-year yield rose nearly 17 bps, the highest

since the December quarter.

On the shorter end of the curve, U.S. two-year yields, which

track interest rate expectations, were down 1.7 bps at

3.723%. On a monthly basis, two-year yields fell 19

bps, while for the second quarter, the yield slid 18.9 bps.

For the first half of 2025, two-year yields sank 53 bps, on

track for the biggest decline since the first quarter of 2020.

In terms of the yield curve, the spread between two-year

and 10-year yields was at 50.70 bps, flatter

since Friday. On a quarterly basis, the curve was 20.7 bps

steeper, the widest gap since the third quarter of 2024.

Mischler's di Galoma also noted that the Fed will have a

new chair next year. "The Fed chair will probably find a way to

either cut the size of the issuance, maybe do more bills, or

maybe do some type of buying Treasuries to make sure rates don't

rise."

In the fed funds futures market, traders priced in a

roughly 21% chance of a rate cut at the July meeting, and a 94%

chance the Fed will ease in September. For the year, traders

factored in about 66 bps in rate cuts.

U.S. Treasury Secretary Scott Bessent also told Bloomberg

Television on Monday that he sees lower rates coming because

inflation has been "tame," noting that the Fed made a "gigantic"

mistake in 2022.

The Fed raised interest rates seven times in 2022 to battle

high inflation, which reached a 40-year peak. The rate hikes

began in March 2022, with the fed funds rate increasing from

near zero to a range of 4.25%-4.5% by December 2022. That was

the fastest monetary tightening since the 1980s.