Bloomberg
(Bloomberg) — Treasuries are on track for their worst week in six months as conflicting economic data have challenged expectations for how much the Federal Reserve might cut interest rates next year.
Yields were higher by four basis points early afternoon in New York, with the 30-year bond’s reaching 4.80%, last seen in late September. While a much bigger selloff in Canadian government bonds Friday, sparked by stronger-than-expected employment data, was a factor, US yields had already risen to weekly highs.
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The US 10-year yield at 4.14% is more than 10 basis points higher since Nov. 28, the most in a week since June. Fed policymakers remain widely expected to cut interest rates at their meeting next week, however expectations for additional cuts next year have been pared amid mixed signals on the health of the US labor market.
“Expectations have been adjusted in a more hawkish direction for the Fed,” said Steven Zeng, an interest-rate strategist at Deutsche Bank. “Investors are growing skeptical of more rate cuts next year.”
Meanwhile, Friday’s delayed release of September personal income and spending data, which includes the inflation gauge the Fed aims to keep around 2%, showed that it accelerated to 2.8%, as economists estimated. Several Fed policymakers have said the inflation trend should forestall rate cuts.
Thirty-year Treasury yields are more than 12 basis points higher, the most in a week since early April, when havoc erupted in financial markets globally after the US administration rolled out its tariffs agenda.
US administration comments this week about the potential for changes in Fed leadership — beyond its plans for a successor to Chair Jerome Powell, whose term ends in May — “have reinvigorated uncertainty, which is reflected in the price action,” said Dhiraj Narula, an interest-rate strategist at HSBC Securities. Treasury Secretary Scott Bessent this week said long-term residency in the district should be an eligibility requirement for regional bank presidents.
The market for long-maturity interest rates in particular “doesn’t like uncertainty around what the potential path for policy might be,” Narula said. “When policy uncertainty goes up, investors need larger premiums to sit in longer tenors.”
Also hampering the Treasury market into next week, auctions of three-, 10- and 30-year debt are slated to begin Monday, a day earlier than usual to avoid coinciding with the Dec. 10 Fed announcement. Besides the rate decision, those will include policymakers’ quarterly summary of economic projections. Fed governors and regional bank presidents anonymously indicate their expectations for key indicators and interest rates over the next several years.
“Markets are probably looking ahead to the bond auctions and waiting for the December FOMC to hint at future direction,” said Evelyne Gomez-Liechti, a strategist at Mizuho International Plc.
Furthermore, next week is anticipated to bring most of the last of this year’s investment-grade corporate bond supply, concentrated on Monday and Tuesday ahead of the Fed.
The bulk of this week’s move in yields came on Monday, fueled by a deluge of corporate debt sales and a warning of potential rate hikes from Bank of Japan Governor Kazuo Ueda. Any signal that the BOJ might tighten policy can ripple across global bond markets, pushing yields higher elsewhere.
–With assistance from James Hirai and Laura Avetisyan.
(Adds 30-year yield and context on Fed leadership questions beginning in sixth paragraph and updates yield levels.)
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