US Treasuries experienced gains following the Federal Reserve’s widely anticipated quarter-point interest-rate reduction. The central bank maintained its projections for one additional cut in the coming year. Yields decreased by approximately three to five basis points across the curve, with the two-year note, which is particularly sensitive to policy changes, leading the decline. US government debt also saw strengthened performance as officials authorised further purchases of short-term Treasury securities, aiming to maintain an adequate supply of bank reserves.
Despite the central bank indicating increased uncertainty regarding further reductions, traders continue to anticipate two more rate cuts in 2026. The next quarter-point reduction is currently priced in for June. The central bank’s forecast remains consistent with its September outlook, projecting one quarter-point cut throughout 2026.
The benchmark lending rate has been lowered to a range of 3.50 per cent to 3.75 per cent. Swaps tracking meetings for 2026 fully reflect expectations of two additional quarter-point rate cuts, both before and after the Fed’s rate decision and statement. Attention is now focused on Fed Chair Jerome Powell’s press conference.
Priya Misra, a portfolio manager at JPMorgan Investment Management, noted that the statement was “not as hawkish as the market feared”. She highlighted the limited number of hawkish dissents, and that there remains significant disagreement within the Fed regarding the risks associated with inflation and unemployment.
