Traders decrease rate cut bets, US bond yields rise ahead of Federal Reserve interest rate decision.

U.S. Treasuries fell ahead of the Fed rate decision as investors bet that the pace of monetary easing would slow down, in the face of data showing economic resilience. The two-year U.S. Treasury yield rose by 4 basis points to 3.82%, as traders reduced their bets on a rate cut. It is currently expected that there will be about three rate cuts starting in July 2025, each being 25 basis points. However, pricing on Thursday suggested that there could be a 1 percentage point rate cut starting in June this year - but this was before significantly stronger-than-expected U.S. economic data led to a major rethink. It is expected that the Fed will keep the benchmark interest rate unchanged at 4.25%-4.50% on Wednesday. Traders will closely watch Federal Reserve Chair Jerome Powell's statements to understand how officials interpret recent data, and whether President Donald Trump's economic policies may have influenced any changes in their views on when to loosen policy. This is because tariffs on imported goods have weakened consumer confidence and may also exacerbate price pressures. "The impact of this meeting may be greater than usual, as it is the first rate decision after the tariff announcement," said Eric Lam, rate strategist at German bank. "Verbal guidance will be crucial, as the market has already delayed expectations for monetary easing," he said. For investors, the challenge lies in balancing recent economic pessimism seen in some surveys with the resilience shown in top indicators such as employment. While U.S. consumer confidence fell to nearly a five-year low in April, non-farm payrolls exceeded all forecasts compiled by Bloomberg. Unfilled contract data shows that after the employment data was released on Friday, there was deleveraging and position unwinding at the front end of the curve, consistent with the liquidation of long positions. Tuesday's JPMorgan U.S. Treasury client survey showed that neutral positions remain high, close to the annual high. "In my view, it is still difficult to make highly confident judgments about U.S. Treasuries at the moment," said Michael Brown, strategist at Pepperstone. "As for the impact of tariffs on the macro economy, it remains to be seen which side bond market participants will ultimately choose, as risks of slowing growth and rising inflation are almost equally common."