U.S. Treasury Yields Pull Back as Rate Cut Bets Intensify

Market Overview

U.S. equities lost momentum on Wednesday. The S&P 500 ended flat, while the Dow dipped slightly. Nvidia extended its winning streak, helping the Nasdaq post a third consecutive gain and pushing semiconductor stocks to outperform the broader market for a second day. Treasury yields spiked intraday but later reversed course, with the 2-year yield dropping to a seven-week lo, —signaling a dovish shift in interest rate expectations. The U.S. Dollar Index neared a three-year low as the euro continued to strengthen. Crude oil rebounded over 2%, recovering from a two-week low, while gold futures also edged higher from this months lows.

Key Themes to Watch

● Fed Plans to Ease Key Capital Rule for Big Banks

The Federal Reserve unveiled a proposal to relax a key capital requirement known as the Enhanced Supplementary Leverage Ratio (eSLR). This rule has been criticized by large banks for constraining their ability to hold U.S. Treasuries and intermediate in the $29 trillion market. Fed Vice Chair for Supervision, Michelle Bowman, noted that the proposal would bolster Treasury market resilience, reduce the risk of market dysfunction, and limit the need for future Fed interventions during times of stress.

● New Home Sales Hit Seven-Month Low

New U.S. home sales fell 13.7% in May to a seasonally adjusted annual rate of 623,000 units, the steepest decline since June 2022 and the lowest level in seven months. Inventory climbed to 507,000 units, pushing the supply timeline to 9.8 months—its highest since October 2007. Mortgage rates near 7%, uncertainty over the economic outlook, and higher construction material costs due to Trumps import tariffs have all dampened buyer demand. The National Association of Home Builders (NAHB) reported builder confidence at a 2.5-year low, with widespread price cuts aimed at clearing inventory. Oxford Economics expects new home sales to remain weak in the coming months, further dragging on residential construction. The cooling housing market not only weighs on overall economic growth but may also reinforce expectations of Fed rate cuts—potentially boosting the appeal of safe-haven assets like gold.

Data Highlights – Key Economic Releases (All times GMT+8)

• 20:30 US

• • Initial Jobless Claims (week ending June 21)

• • Final Q1 Annualized GDP

• • Final Q1 Personal Consumption Expenditures (PCE)

• • Final Q1 Core PCE Price Index (Annualized)

• • May Durable Goods Orders (MoM)

• 22:00 US

• • Pending Home Sales Index (MoM, May)

• Overnight – 02:30 EU

• • ECB President Christine Lagarde delivers a speech