Adds analyst comment, yield curve, updates yields

By Gertrude Chavez-Dreyfuss

NEW YORK, July 18 (Reuters) - U.S. Treasuries rose on Friday, dragging yields lower, after Federal Reserve Governor Christopher Waller pushed for a rate cut later this month, citing a slowdown in private-sector hiring.

Technical buying also contributed to the move higher in Treasury prices after being sold for most of the week, analysts said. U.S. Treasury yields across the curve hit multiweek peaks earlier this week.

Analysts specifically pointed to the 10-year note, which showed that momentum indicators have moved to oversold territory, suggesting a pullback was under way.

Friday's economic reports were mixed, providing little clarity on the day's rate moves. The benchmark 10-year yield was down 3 basis points (bps) at 4.434% US10YT=RR, but up for a third straight week. U.S. 30-year yields slipped, down 1.4 bps at 5.001% US30YT=RR, but were also on track for their third consecutive weekly rise.

The two-year yield, which reflects interest rate expectations, fell 3.9 bps to 3.878% US2YT=RR. On the week, the yield was down 3.7 bps, its largest weekly decline since June 23.

Analysts noted that Waller's comments kept Treasuries well-bid earlier in the session. He reiterated his stance late on Thursday and on Friday that the Fed should cut interest rates at the end of this month amid mounting risks to the economy and the strong likelihood that tariff-induced inflation will not drive a persistent rise in price pressures.

Waller was also concerned about private-sector hiring starting to slow.

"Comments by Waller about potentially cutting rates this month seem to be spurring some optimism overall," said Zachary Griffiths, head of investment-grade and macro strategy at CreditSights in Charlotte, North Carolina.

"It's propelling not only a rally in Treasuries, but risk sentiment more broadly."

Griffiths said Waller has made his stance on rate cuts well-known for several weeks, but his focus on the labor market instead of inflation caught the market's attention.

"It's opening this front that the labor market is weaker, and introducing this idea or justification for earlier moves."

Bond investors, however, expect the Fed to remain on hold at this month's policy meeting. The U.S. rate futures market, though, has very slightly increased the odds of a rate cut in July to 4.7% from about 3% a few days ago in the wake of Waller's comments, according to LSEG estimates. The September probability, which was about 50-50 on Thursday, increased to 61% on Friday.

RESILIENT ECONOMY

On the data front, Friday's numbers continued to depict an economy that is fairly resilient, with some pockets of weakness.

U.S. housing starts, for one, increased by 4.6% in June, higher than expectations. Multi-family housing starts also rebounded sharply. But single-family housing starts, which account for the bulk of homebuilding, dropped 4.6% to a seasonally adjusted annual rate of 883,000 units last month, the lowest level since July 2024.

Another report - the University of Michigan Surveys of Consumers - showed that consumer sentiment remained upbeat while inflation expectations declined. The Consumer Sentiment Index rose to 61.8 this month from a final reading of 60.7 in June. Economists polled by Reuters had forecast the index would increase to 61.5.

Data further showed consumers' 12-month inflation expectations dropped to 4.4% from 5.0% in June. Long-run inflation expectations fell to 3.6% from 4.0% last month.

Dan Siluk, head of global short duration and liquidity at Janus Henderson Investors, said the underlying message from the data is that the U.S. economy remains strong, even though political uncertainty, especially on trade policy, could lead to bouts of additional volatility.

But he noted that rates on the front end of the U.S. curve remained in the 3.80%-4% range.

"From an investor perspective, that's a good thing in the sense (that) you're able to comfortably allocate and put capital or put risk to work ... So we're comfortable with that stubborn resilience in the economy, but we have to be cautiously optimistic as investors because of the uncertainty."

In other parts of the bond market, the yield curve steepened slightly on Friday, with the gap between two-year and 10-year yields at 54.9 bps US2US10=TWEB, up from 54.4 bps late on Thursday.

The U.S. yield curve has stabilized, pulling back from massive steepening on Wednesday, following initial news reports that President Donald Trump planned to fire Fed Chair Jerome Powell. Trump denied those reports.

The curve hit 61.8 bps on Wednesday, the widest spread since April, reflecting a selloff in longer-dated debt on concerns that the Fed under a new chairman could cut rates aggressively, reigniting inflation.

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Laura Matthews; Editing by Philippa Fletcher, Nia Williams and Matthew Lewis)

((gertrude.chavez@thomsonreuters.com; 646-301-4124))