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Treasury Markets: Treasury yields initially rallied to recent troughs on Wednesday following a series of bearish economic data before retracing higher after better-than-expected ISM Manufacturing and nonfarm payrolls data, along with positive trade developments with China and the EU, revived risk sentiment.

Early-week data showed consumer confidence continuing to plummet to the lowest reading since mid-2020 and GDP contracting 0.3% annualized in Q1 due to a surge in imports prompted by looming tariff concerns. March’s PCE print fell in-line with expectations for a flat MoM headline reading, although YoY headline inflation rose at a slightly higher-than-expected clip of 2.3%. The 2Y UST rallied to a seven-month trough of 3.60% on Wednesday before the subsequent selloff lifted yields 8 bp higher WoW to 3.82% as of Friday. Yields on the 10Y similarly closed at an intraweek trough of 4.16% on Wednesday, the lowest level since shortly after “Liberation Day”, before retracing higher to 4.31% (+7 bp WoW). Risk appetite rebounded after the ISM PMI showed manufacturing contracting less than expected in April; new orders and employment measures improved to a softer contraction, while inflation surprised to the downside, though it remains at the highest expansionary reading since June 2022. The US labor market remained steady with job gains surprising to the upside (+177k versus +138k consensus), although this was more than offset by the 58k of downward revisions to the previous two months’ figures. Since the 2s10s curve steepened to a three-year peak of +64 bp two weeks ago amid concerns about Fed independence and scrutiny of the dollar’s safe-haven status, the recent bear flattener has pushed the curve to +48 bp, standing 22 bp steeper compared to pre-“Liberation Day” levels.

As markets await comments from Fed Chair Powell following Wednesday’s FOMC meeting, market pricing implies that the policy decision is largely a foregone conclusion with a continued hold.