US Treasuries Ease After Weak 5-Year Auction Ahead of Fed Decision

US Treasury (UST) yields ticked slightly higher overnight following a muted 5-year note auction, as markets tread cautiously ahead of a critical Federal Reserve decision.

The USD70.0 billion 5-year auction drew a high yield of 3.983%, with all tenders at lower yields accepted in full. However, the bid-to-cover ratio came in weak at 2.31, and only 87.8% of competitive bids were awarded to direct and indirect bidders, a sign of waning demand.

With another USD44.0 billion in 7-year notes up for sale tomorrow ‘s morning (MYT), alongside the release of JOLTs job openings tonight, investors remain reluctant to take strong directional views. The US Q2 2025 advance GDP estimate, due just before the Fed decision, adds further uncertainty.

The Federal Open Market Committee (FOMC) is widely expected to hold rate steady in its July meeting (decision at 2:00AM MYT on Thursday). As of today, Fed Funds futures imply a 96.9% probability of no change. However, the wording of the statement, any dissenting votes, and Chair Powell’s press conference will be closely scrutinised for forward guidance.

Separately, while recent tariff negotiations with the EU and other trading partners avoided worst-case outcomes, they still point to rising import costs for US consumers over the coming months. Recent data shows exporters are absorbing just ~10.0% of tariffs, consumers ~30.0%, while US companies are bearing the brunt, absorbing ~60.0% and taking a hit to margins.