10-year Treasury yield ticks lower. Fed’s Waller advocates for July cut

Longer-dated U.S. Treasury yields fell on Friday after Federal Reserve Governor Christopher Waller said in an interview on CNBC that inflation was softening to the point where the central bank could cut interest rates at its next meeting in July.

The 10-year yield was more than 1 basis point lower at 4.377%, while the 30-year bond yield inched down less than a basis point to 4.89%. The 2-year note yield fell more than 3 basis points to 3.908%.

One basis point equals 0.01%, or 1/100th of 1%, and yields and prices move in opposite directions.

Waller said on “Squawk Box” that he believes the Fed could cut rates as early as July. That came two days after the central bank left its borrowing rate unchanged at 4.25%-4.5% at the June meeting that wrapped up Wednesday, when its policy-setting committee anticipated that inflation may move higher and economic growth may slow.

“I think we’re in the position that we could do this as early as July,” Waller said. “That would be my view, whether the committee would go along with it or not.”

“Given the improving inflation story over the past few months and with the economic data coming in softer than expected, markets could be underpricing the pace of rate cuts over the next few years,” said Lawrence Gillum, chief fixed income strategist at LPL Financial. “We think the Fed will cut more than what’s priced-in to markets, which should be supportive of bond markets going forward.”

The bond markets also continued to monitor the conflict between Israel and Iran, and President Donald Trump’s remarks that he is considering ordering direct U.S. intervention.

“Based on the fact that there’s a substantial chance of negotiations that may or may not take place with Iran in the near future, I will make my decision whether or not to go within the next two weeks,” the president said in a statement read Thursday by the White House press secretary.

Earlier this week, Trump said he issued Tehran an “ultimate ultimatum,” telling reporters at the White House that he “may do it, may not do it,” with regard to ordering a U.S. strike on Iran.

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