U.S. Treasury yields stop falling and retreat as investors bet on the Federal Reserve starting interest rate cuts in September

According to the Zhitong Finance APP, U.S. Treasury bonds reversed a three-day decline on Tuesday, with yields falling across the board as investors continued to bet that the Federal Reserve may cut interest rates as early as September, while awaiting a significant speech from Fed Chairman Jerome Powell at the Jackson Hole annual meeting. Data shows that U.S. Treasury yields across various maturities generally fell by 1 to 4 basis points, with the 10-year benchmark yield dropping to 4.30%, ending the sell-off that began last Thursday. At that time, the U.S. July PPI recorded its largest increase in three years, raising market concerns. Before Powell's speech, investors were weighing mixed economic data. Signs of a cooling job market have strengthened expectations for easing. According to pricing in the interest rate swap market, the probability of a Fed rate cut in September has risen to about 80%, but several strategists have warned that the final decision will still depend on the economic data performance in the coming weeks. “Powell faces a difficult situation when he speaks on Friday, as there is still some time before the September meeting, during which a lot of data needs to be digested,” said Robert Sockin, a senior global economist at Citigroup, in an interview. “The focus will be on the trends in the labor market.” Earlier the same day, U.S. Treasuries were also boosted by rating news. S&P Global maintained the U.S. long-term sovereign credit rating at AA+ and emphasized that tariff revenues from the Trump administration would partially offset the impact of its massive tax cuts on the budget. S&P analyst Lisa Schineller wrote in a report: “With the effective tariff rate rising, we expect substantial tariff revenues to generally offset the weaker fiscal results brought about by recent fiscal legislation (including tax cuts and spending adjustments).” Bloomberg macro strategist Alyce Andres commented: “S&P's statement, combined with dovish signals from Fed officials, has contributed to the recent decline in bond market yields.” This is also a positive for Trump. The White House has consistently emphasized that tariff policies help improve the U.S. fiscal situation. Data from the Treasury Department shows that U.S. tariff revenues reached a record high in July, with customs duties totaling $28 billion. However, the views of rating agencies still have a profound impact on the world's largest bond market. This year, as Trump’s tax cuts intensified deficit concerns, Moody's stripped the U.S. of its last top credit rating in May, aligning it with S&P and Fitch. This move had previously pushed the 30-year Treasury yield above 5% and forced some pension funds to sell off risk. In its latest outlook, S&P pointed out that U.S. net government debt is expected to exceed 100% of GDP over the next three years, but the fiscal deficit ratio during 2025 to 2028 is expected to average 6%, lower than last year's 7.5%. Homin Lee, a senior macro strategist at Lombard Odier, believes that S&P's maintenance of the rating “does not mean that the U.S. fiscal health has seen substantial improvement; this remains a complex issue.” He added that Moody's previous downgrade was more of a “symbolic action” and had lagged behind changes in market sentiment