The yield on the 10-year US Treasury note fell to 4.2% on Friday, approaching the lowest in over two weeks as markets continued to assess risks of an economic slowdown and how the Federal Reserve would react. The Fed held its rates unchanged this week but its dot-plot indicated that policymakers still foresee two 25bps rate cuts this year amid lower growth and higher unemployment. As a result, traders began to price in three rate cuts by the Fed this year, up from prior expectations of just two cuts before the decision. This shift occurred despite projections for higher inflation, although Chairman Powell emphasized that policymakers view the inflationary impact of tariffs as temporary. Bonds were also supported by the Fed slowing its balance sheet runoff to address signs of lower underlying liquidity. The Fed’s Treasury holding will be reduced by $5 billion per month instead of $20 billion, while the $35 billion runoff for MBSs are unchanged.