Treasury Curve Signals Disappointment With Bullard’s Message

(Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard flashed a signal on the prospect of future rate cuts that one part of the Treasuries market apparently didn’t like.

A voter on the Federal Open Market Committee this year, Bullard said he liked Chairman Jerome Powell’s comparison of the July 31 quarter-point rate cut to a midcycle adjustment. As Bullard went on to say that he’s not seeing yield-curve inversion intensifying so far, one widely followed segment flattened further.

Benchmark 10-year notes outperformed two-year maturities on the day, shrinking the yield spread between the two to just under 12 basis points, for its flattest closing level since December.

“Bullard’s comments signal one more rate cut, whereas the market is pricing in a third rate cut by year-end and definitely four rate cuts between now and next July,” said Tony Farren, managing director at Academy Securities Inc. in Norwalk, Connecticut. “There was a little disappointment in the front end.”

“He’s seen as one of the more dovish members of the FOMC,” Farren said. “And if he’s only talking one more rate cut, then that’s signaling the market should start taking out some of the rate cuts it has built in.”

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum

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