US Treasuries Poised for First Weekly Advance Since November

US Treasuries are heading toward their first weekly advance since November, as a combination of softer-than-expected inflation data and a rise in unemployment strengthened market conviction that the Federal Reserve is moving closer to easing monetary policy. The shift in economic signals has prompted investors to reassess the outlook for interest rates, driving renewed demand for government bonds.

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Benchmark Treasury yields declined across the curve as traders priced in a more accommodative policy stance from the Fed. The 10-year yield is on track for a weekly drop of about four basis points, reflecting growing confidence that inflation pressures are continuing to ease. Meanwhile, shorter-dated bonds saw even stronger gains, with the two-year yield falling more sharply as markets adjusted expectations for future rate cuts.

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Recent inflation readings surprised to the downside, offering reassurance that price pressures are cooling more steadily than previously thought. That data, combined with an uptick in the jobless rate, reinforced the narrative that the economy may be losing some momentum. For bond investors, the combination was a powerful signal that the central bank may soon have room to loosen policy without risking a resurgence in inflation.

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Markets are now increasingly confident that the Federal Reserve will deliver at least two interest-rate cuts next year. Expectations for easing have firmed as policymakers continue to emphasize their data-dependent approach, and recent figures have aligned with the Fed’s goal of bringing inflation closer to target while avoiding a sharp economic slowdown.

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The move lower in yields was most pronounced at the front end of the curve, where bonds are particularly sensitive to changes in rate expectations. The decline in the two-year yield suggested that traders are pricing in a more dovish path not only for 2025, but also extending into 2026. That shift indicates growing belief that restrictive policy will not need to remain in place for as long as once feared.

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The rally in Treasuries marked a notable turnaround after weeks of pressure on bonds. Since November, yields had largely trended higher as resilient economic data and sticky inflation tempered hopes for near-term rate cuts. This week’s developments, however, helped break that pattern, offering fixed-income investors some relief.

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The rise in the jobless rate played a key role in reshaping expectations. While the labor market remains relatively strong by historical standards, signs of softening are becoming more apparent. Slower hiring and a gradual increase in unemployment suggest that higher borrowing costs are beginning to weigh on business activity, strengthening the case for a more cautious policy stance.

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For the Federal Reserve, the challenge remains balancing inflation control with economic stability. Officials have repeatedly stressed they want to avoid easing too quickly, but they have also acknowledged that maintaining overly restrictive policy for too long could increase the risk of a sharper downturn. Recent data appears to support the view that policy is having the intended effect.

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Bond markets reacted swiftly to that reassessment. Investors rotated into longer-dated Treasuries, seeking to lock in yields before potential rate cuts materialize. The resulting demand helped push prices higher and yields lower, particularly in the belly of the curve.

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The move in Treasuries also had broader implications for other asset classes. Lower yields tend to support equities by reducing discount rates and easing financial conditions, while also weakening the US dollar. While stocks showed mixed reactions during the week, the bond rally signaled improving confidence in a more benign macroeconomic environment.

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Still, some caution remains. While inflation has cooled, it has not yet returned fully to the Fed’s target, and future data could complicate the outlook. Energy prices, geopolitical risks, and shifts in consumer behavior all have the potential to reignite price pressures, keeping policymakers on alert.

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Looking ahead, investors will be watching upcoming economic releases closely, particularly data on inflation, wages, and employment. Any deviation from the recent trend could prompt markets to quickly adjust expectations for the timing and pace of rate cuts.

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For now, the bond market’s message is clear. The combination of easing inflation and a softening labor market has strengthened confidence that the Federal Reserve is nearing a turning point. With expectations for at least two rate cuts next year becoming more firmly entrenched, Treasuries appear poised to end the week on a stronger footing.

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As the year draws closer to its end, attention will increasingly turn to how durable this shift proves to be. If incoming data continues to support a cooling economy without a sharp slowdown, the rally in bonds could have further room to run. For investors, this week’s move serves as a reminder of how quickly sentiment can change when the data starts to line up in favor of a more dovish policy outlook.