By Sunny Oh

Short-term Treasury yields climbed on Friday, trimming a week long decline, after senior Federal Reserve officials helped dampen expectations for a 50 basis point interest rate cut this month.

What are Treasurys doing?

The 2-year Treasury note yield, sensitive to expectations for Fed policy, picked up 3.7 basis points to 1.813%, limiting its weeklong drop to 2.1 basis points.

The 10-year Treasury note yield was up 0.9 basis point to 2.048%, paring back its weeklong fall to 5.8 basis points. The 30-year bond rate rose a single basis point to 2.578%, trimming its weeklong decline to 5.6 basis points. Debt prices move in the opposite direction of yields.

What's driving Treasurys?

The Wall Street Journal reported (https://www.wsj.com/articles/fed-officials-signal-quarter-point-rate-cut-likely-at-july-meeting-11563559491) that the U.S. central bank was signaling a 25 basis point rate cut at its July 30-31 meeting. This comes as expectations for a sharp 50 basis point rate cut in July have risen and fallen after speeches by senior Fed officials.

On Thursday, New York Fed President John Williams on Thursday spurred hopes for a half-point rate cut, suggesting central banks should act aggressively to counter emerging signs of economic distress when interest rates are near zero.

But a New York Fed (http://www.marketwatch.com/story/new-york-fed-downplays-williamss-speech-calling-it-academic-and-not-about-july-policy-meeting-2019-07-18) spokesperson later played down Williams' remarks saying his comments only pertained to academic research and did not hold immediate policy implications. And St. Louis Fed President James Bullard said on Friday that a 50 basis point cut would be excessive.

Traders on the fed fund futures market are now anticipating a 22% chance of a 50 basis point rate cut in the July 30-31 meeting, from 60% a day ago, CME Group data show.

Treasurys lost some of their bearish impetus at the end of the trading session after reports that Iran's Revolutionary Guard (http://www.marketwatch.com/story/iran-seizes-british-oil-tanker-2019-07-19) had seized a British oil tanker in the Strait of Hormuz, a key artery for oil shipping in the Middle East.

What did market participants' say?

"The FOMC seems to be coalescing around a 25 bp rate cut, and financial markets finally seem to have gotten the message," wrote Stephen Stanley, chief economist for Amherst Pierpont Securities.

"The market was already volatile enough without the NY Fed President's 'dry powder' remarks Thursday afternoon, but [returned] to life during a transition period for Fed policy. Chair Powell has been smoothing the way for lower rates, but communication misfires are anything but smooth," said Jim Vogel, a rates strategist at FTN Financial.

"One clear take away this week, Fed officials are not paying that much attention to second quarter data reports, focusing almost exclusively on forward risks," said Vogel.

(END) Dow Jones Newswires

July 19, 2019 15:59 ET (19:59 GMT)