U.S. Treasury yields softened on July 21 as Federal Reserve board member Christopher Waller delivered dovish remarks, intensifying investor expectations for interest rate cuts. His comments, emphasizing that rate reductions could begin as early as July, triggered a decline in yields and coincided with record highs in equity markets—signaling mounting optimism that the Federal Reserve may soon shift to a more accommodative stance.
Waller told CNBC that the Fed is in a position to start trimming rates at the July policy meeting, asserting that recent inflationary pressures from tariffs appear temporary and that the labor market is showing signs of cooling. “We don’t need to wait until the job market crashes before we start cutting rates,” he said. These comments reinforced earlier signals he’s been the most dovish among his colleagues, potentially dissenting if the committee opts to hold rates steady in July.
Financial markets responded swiftly. The yield on the 10-year U.S. Treasury dropped to around 4.32–4.38%, while the 30-year Treasury saw strong inflows into long-duration assets, consistent with positioning for a Fed pivot. Meanwhile, futures markets now reflect approximately a 60% likelihood of a rate cut by September.
Equity investors seized on the dovish tone and strong earnings results. On July 21, the S&P 500 closed at an all-time high of 6,331.90 (+0.56%), while the Nasdaq Composite rose to 21,042.87 (+0.71%). A key driver were “megacap” tech stocks entering earnings season, while Verizon’s robust outlook lifted telecom shares. So far, earnings have been unexpectedly strong—with more than 80% of S&P 500 companies surpassing forecasts.
Investors have also been buoyed by renewed optimism around U.S.–EU trade talks and easing tariff tensions, reinforcing the broader risk-on sentiment. At the same time, gains in the energy and financial sectors have been supported by positive earnings news and inflows into bond-sensitive ETF sectors.
Despite the upward momentum, analysts caution that high valuations, potential policy missteps, and lingering geopolitical uncertainties could test the rally’s resilience. HSBC strategists warned that rising yields, shifting Fed policy, AI-driven tech volatility, and tariff-related risks could pose challenges in the coming months.
Looking ahead, all eyes are on upcoming Federal Reserve Chair Jerome Powell’s speech and June inflation and employment data, as markets seek confirmation of a potential pivot. For now, Waller’s insistence that the Fed may start cutting rates “as soon as July” has tilted investor psychology strongly in favor of easier policy—helping push bond yields lower and equities higher.
