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Improving risk appetite reduces demand for Treasuries

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Trump to decide on Iran response in next two weeks

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Fed's Waller says bank should consider cutting rates

By Karen Brettell

June 20 (Reuters) - Longer-dated U.S. Treasury yields

rose on Friday as stock markets rallied, reducing safe-haven

demand for the bonds, and after Federal Reserve Chair Jerome

Powell on Wednesday said policymakers expect inflation to rise

over the summer.

Stocks climbed after the White House said on Thursday that

President Donald Trump would decide on potential U.S.

involvement in the Israel-Iran conflict in the next two weeks,

citing possible negotiations involving Iran soon.

Iran said on Friday it would not discuss the future of its

nuclear program while under attack by Israel, as Europe tried to

coax Tehran back into negotiations.

"There's a bit of a risk-on trade going on, meaning people

aren't really piling into Treasuries," said Tom di Galoma,

managing director at Mischler Financial Group.

U.S. government debt is catching up to yield increases on

Thursday in European bonds, di Galoma said. U.S. markets were

closed on Thursday for the federal Juneteenth holiday.

The yield on benchmark U.S. 10-year notes was

last up 1.6 basis points at 4.411%. The interest-rate-sensitive

2-year note yield fell 0.2 basis points to 3.939%.

The yield curve between 2-year and 10-year notes

steepened by around 2 basis points to 48 basis

points.

Yields edged higher after comments from Fed's Powell at the

conclusion of the U.S. central bank's two-day meeting on

Wednesday were interpreted as slightly hawkish.

The Fed held interest rates steady and policymakers signaled

borrowing costs are still likely to fall in 2025. But Powell

cautioned against putting too much weight on that view, and said

he expects "meaningful" inflation ahead as consumers pay more

for goods due to the Trump administration's planned import

tariffs.

"Market reaction suggests a slightly hawkish read for the

June FOMC," Bank of America credit strategists Yuri Seliger and

Sohyun Marie Lee said in a report, referring to the Federal Open

Market Committee. "However, the bigger picture is that the FOMC

meetings had little market impact this year, and the June

meeting was no exception."

Fed funds futures traders are pricing in 49 basis points of

cuts by December, indicating they continue to see two

25-basis-point rate reductions as most likely.

Fed Governor Chris Waller said on Friday the U.S. central bank

should consider cutting interest rates at its next meeting,

given recent tame inflation data and the fact that any price

shock from import tariffs will be short-lived.