U.S. 10-Year Treasury Yields Fall Below 4.3% as Investors Return to Bonds

1. Renewed inflows into the bond market enhance liquidity

2. Fed prepares to ease Supplementary Leverage Ratio (SLR)

3. Powell signals growing likelihood of a July rate cut

4. Gold loses investor appeal despite dovish tones

1. Bond Market Inflows Improve Liquidity Conditions

The yield on the U.S. 10-year Treasury has fallen below 4.3%, signaling increased market expectations for interest rate cuts. This has driven down borrowing costs, a positive for overall economic activity and a potential catalyst for the long-stagnant U.S. housing market, which has struggled under the weight of elevated rates.

As one of the key pillars of the U.S. economy, housing has been subdued primarily due to the Federal Reserve's aggressive rate hikes over the past two years. Looking forward, in addition to strong underlying demand, the sector stands to benefit from reindustrialization efforts that are expected to drive employment and population shifts across regions.

From the perspective of former President Trumps policy agenda, domestic demand and exports are both strategic growth engines. Housing, as a core driver of domestic demand, is poised for a comeback. As capital flows back into the bond market and yields retreat, the recovery in Treasuries lays the groundwork for sustained economic expansion.

2. Fed Prepares to Adjust eSLR Rules

According to Reuters, Fed Chair Jerome Powell told lawmakers that the central bank plans to propose a revision to how the Enhanced Supplementary Leverage Ratio (eSLR) is calculated. The eSLR requires the largest U.S. banks to hold additional capital buffers.

A revision of this framework would reduce pressure on long-term bond selling and help support the Feds quantitative tightening (QT) process by softening the impact on equity and fixed income markets during tightening cycles.

3. Markets Now Price in Three Rate Cuts This Year

During his testimony before Congress, Powell stated that the current policy rate is "somewhat restrictive." He added that if a trade agreement is reached, it could “open the door for the Fed to consider rate cuts.”

For the first time, Powell acknowledged that a July rate cut is on the table, noting that additional tariffs imposed over the summer could drive inflation higher — a critical factor in evaluating future monetary policy shifts.

This significantly bolstered market expectations for a total of 75 basis points in cuts this year, with the first move potentially coming as early as July.

(Chart 1: Probability of 75bps Fed Rate Cuts in 2025 rises from 39.9% to 41.5%; Source: FedWatch Tool)

4. Why Has Gold Failed to Rally on Dovish Signals？

We have consistently argued that gold prices remain overvalued. Previously, the price action had diverged from real interest rates, and thus, even with falling real yields, gold is not reacting with bullish momentum.

Additionally, with the passage of the CBDC legislation, capital is rotating out of gold into other asset classes. Short-term sentiment and technicals remain unfavorable for gold.

Gold Technical Outlook

Gold has entered a two-phase downtrend. After reaching $3,295 in the second leg, it rebounded, though this level does not mark the final bottom of the current move. The $3,295 mark represents a measured move target.

With the downtrend intact, traders should monitor resistance at $3,344 and $3,356. If price action fails to break above these levels and forms a bearish reversal pattern on the hourly chart, this would be a signal to consider short positions. A stop-loss of $20 is advised.

• Support: $3,395

• Resistance: $3,344 / $3,356

Disclaimer: The views, analysis, and data presented above are intended for general market commentary only and do not represent the official position of this platform. Investors should perform their own due diligence and assume full responsibility for any investment decisions. Trade with caution.