Expectations of a Fed rate cut in September drive the month-end rally in US bonds, with yields hitting a more than 4-month low

According to the Zhitong Finance and Economics APP, on Wednesday, after Federal Reserve Chairman Powell indicated that the earliest rate cut may be in September, US Treasury bonds rose. This upward trend has been maintained for three consecutive months, marking the longest continuous rise in US bonds in three years. The US bond yields plummeted by about 10 basis points or more, as some safe-haven buying was triggered by tensions in the Middle East, accelerating later in the day. The yield on the US two-year Treasury bond fell to its lowest level since February this year, and traders expect at least two rate cuts starting from the next meeting this year.

Although, as expected, Federal Reserve officials kept the target interest rate in the range of 5.25% to 5.5%, Powell stated that data is moving in the direction of easing monetary policy, which has buoyed bond investors. Powell's remarks have made Friday's monthly non-farm payroll report a focus, with investors eager to see further evidence of a cooling job market, which will help lay the foundation for recent rate cuts.

Ed Al-Hussainy, rate strategist at Columbia Threadneedle, said, "The market has already digested a lot of dovish signals, and the current pressure is the need for data to confirm this." "The Fed is under pressure to change its strategy."

Interest rate swap trading shows that traders have fully priced in a 25 basis point rate cut in September, as well as expectations for a total of nearly 70 basis points of rate cuts this year.

Leah Traub, portfolio manager at Lord Abbett & Co, said, "The committee is not yet ready to fully commit to a rate cut in September. They won't commit to a rate cut, but it's clear that they are still moving towards a rate cut, and I think a rate cut in September is entirely up for discussion."

In a statement, officials said the Fed is "monitoring the risks to its dual mandate" of price stability and full employment, adding that they do not want to cut rates "until they have greater confidence that inflation is moving steadily towards 2%."

This has drawn attention to a series of expected data from now until September, with the most prominent being the US employment report. The Fed symposium in Jackson Hole, Wyoming next month will also provide Powell with an opportunity to fine-tune the message on monetary policy being conveyed to the market.

Former New York Fed Chief Dudley said on Wednesday that Fed officials are expected to have enough confidence to unanimously vote to cut rates by 25 basis points before September.

The yield on the 10-year US Treasury bond has fallen by about 36 basis points this month, marking the largest drop so far this year. Bloomberg's US Treasury benchmark index rose 1.7% in July.

Earlier on Wednesday, the US "small non-farm" report for July showed the lowest level of new job additions in the US since the beginning of the year. Another government report showed that broad US labor costs in the second quarter grew less than expected Similarly on Wednesday, the US government kept the quarterly sales of long-term bonds unchanged for the second consecutive quarter, and stated plans to maintain issuance stability over "several quarters." This outcome was widely expected by primary dealers.

In the foreign exchange market, the Fed's statement amplified the impact of the Bank of Japan's earlier hawkish meeting. Earlier, the yen rose to its highest level since March, while Bloomberg's US Dollar Index fell by 0.6%, marking the largest decline in nearly three weeks, hitting a daily low during Powell's speech