Fed Pivot Trade Sparks Again as Bonds Rally, Dollar Weakens

Global bonds and stocks are rallying on hopes that the latest signs of weakness in the US economy will push the Federal Reserve to rethink the aggressive monetary policy tightening that some fear will trigger a recession.

While the so-called Fed pivot has long been hoped for, it got another jolt this week with the release of weaker-than-expected manufacturing data in the US. The dollar extended losses Tuesday, and European equities jumped, following a similar rally in the US on Monday.

The moves came as traders trimmed bets on future rate hikes, with money markets signaling that the Fed Funds rate will peak by March. The two-year Treasury yield briefly slid below 4% for the first time since Sept. 21. German short-dated bonds rallied even more, with yields down as much as 16 basis points to 1.46%.

“Central banks may start to realise that raising rates so fast -- especially in Europe -- will lead to a severe recession so they slow down and get volatility down,” said Jens Peter Sorensen, chief analyst at Danske Bank A/S.