Waller and Bessent help peg back Treasury yields

A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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Salvos from a Federal Reserve governor and the incoming Treasury Secretary helped nail down this week's inflation-inspired retreat in worrisome U.S. Treasury yields before Donald Trump's inauguration as president on Monday.

The reversal of the year's rise in U.S. yields and the dollar coupled with news of an upbeat end to last year for China's economy nudged world stocks up on Friday. 

Scott Bessent, U.S. President-elect Donald Trump's nominee to be secretary of treasury, looks on next to his husband John Freeman and son Cole, on the day he testifies during a Senate Committee on Finance confirmation hearing on Capitol Hill in Washington, U.S., January 16, 2025. REUTERS/Kevin Lamarque

Two-year Treasury yields hit their lowest level since Jan. 2 - a punchy 20 basis points off Monday's peaks - after Fed board governor Christopher Waller on Thursday held out the chance of three or four interest rate cuts this year.

Not unlike a similar forecast from Bank of England policymaker Alan Taylor the previous day, the unusually dovish take from Waller suggested twice as much easing this year than currently priced into futures markets.

With the Fed governor welcoming the week's surprisingly soft inflation report and saying March could not be ruled out for a resumption of rate cuts, Fed funds futures have moved back closer to pricing two rate cuts in 2025 - having doubted any cuts were coming as recently as last week.

The rally in Treasuries saw two-year yields slip below 4.45% and the 10-year probed back under 4.60%. The dollar index held up, partly because the yen weakened despite fresh reports the Bank of Japan would raise its key policy rates next week.

Even though a tech-sector drag saw Wall Street stock indexes step back on Thursday - after the prior session's best day of the year so far, amid an earnings-related bank stocks boom - futures were up again ahead of Friday's bell and a three-day weekend due to Monday's Martin Luther King holiday.