Short-term U.S. government bonds are underperforming longer-duration Treasurys after San Francisco Fed President Mary Daly pushed back against the need for an interest-rate cut of 50 basis points at the Federal Reserve's September meeting.

Futures markets are also expecting a rate cut. Investors peg the chances of a quarter-point interest rate cut at nearly 96%, according to the CME FedWatch Tool, a measure of market sentiment.

San Francisco Fed President Mary Daly has pushed back against the need for an interest rate cut of 50 basis points at the Federal Reserve's September meeting, the Wall Street Journal reported on Thursday.