U.S. Treasuries Rebound in June, First-Half Returns Flat
Claire Weston
U.S. Treasuries gained 0.7% in June, pulling first-half returns back to flat; falling oil prices drove long-end yields lower, but the Fed's hawkish signals pushed short-end yields higher — the market swung between rate-hike and rate-cut bets all quarter.
What drove the June rally?
The core driver was falling oil prices. The Iran war had pushed crude — and benchmark yields — to year-highs in May. By June, oil had retreated to late-February pre-war levels, pulling inflation expectations down with it.
The 30-year yield fell roughly 8 basis points to 4.89%, touching 4.82% last week — its lowest since March. This means → long-dated bond prices rose, accounting for most of the index's June gain.
The Bloomberg U.S. Treasury Index gained 0.7% for the month, just enough to erase the zero year-to-date return posted at the end of May.
Why didn't the short end follow?
Two-year yields moved the opposite way, climbing more than 13 basis points to about 4.14% at month-end, peaking at 4.23% on June 22. In plain terms = short-term Treasuries actually lost value while long bonds rallied.
The trigger was the Fed's hawkish pivot under new Chair Kevin Warsh, who pledged on June 17 to restore price stability — dispelling fears he might bow to political pressure and cut rates.
The Fed's quarterly projections showed growing support within the committee for hiking rates to combat elevated inflation. This reflects a consensus shift from "wait and see" toward "tighten."
How stubborn is the inflation problem?
The PCE price index — the Fed's preferred inflation gauge — rose to 4.1% year-over-year in May, remaining above the 2% target continuously since early 2021.
Oil is not the only source: massive AI-infrastructure capital spending is also adding price pressure. May payrolls, released June 5, beat expectations and triggered the month's sharpest single-day sell-off.
This means → even with oil prices retreating, the inflation "floor" remains elevated, leaving the Fed little room to ease.
What is Wall Street expecting next?
Natixis North America head of U.S. rates strategy John Briggs called Q2 rate markets "a wild ride." The Fed's focus on price stability during the Iran war cemented hike expectations; the late-quarter oil plunge eased some concerns but did not eliminate them.
JPMorgan Asset Management portfolio manager Priya Misra said the past three months were about "separating signal from noise." She expects economic data to be more decisive in Q3: a July hike is unlikely, but September hinges on "whether oil-driven inflation spills into broader measures and whether the labor market re-accelerates."
JPMorgan rates strategists noted 10-year yields appear roughly 25 basis points too low, yet advised against shorting ahead of the jobs data — the S&P 500 rallied more than 14% this quarter, and end-of-quarter rebalancing flows into bonds could push yields lower.
What is the next key trigger?
June payrolls data arrives Thursday and will directly shape the market's rate-hike pricing for the July 29 Fed meeting.
In plain terms = strong jobs numbers would reinforce hike bets; a miss could let short-end yields ease and give bonds a breather.
This is the pivotal checkpoint for the next phase of the rates outlook.
Content is for reference only, not financial advice.