Seismic Day for Treasuries Fuels Bets Fed to Slash Rates in 2024
A normal day for markets became something extraordinary after a hotly anticipated report on US inflation gave traders the greenlight to declare that the Federal Reserve’s most aggressive interest-rate hiking cycle in decades is over.
Yields on rate-sensitive two-year notes slumped as much as 23 basis points to 4.81%, as investors marked down the odds of another rate increase to almost nil. Meanwhile, the benchmark 10-year rate slid about 19 basis points to 4.45%, and traders boosted their bets on the Fed slashing rates next year to price in more than half a percentage point of cuts by July.
Traders in the options market went one step further: piling into wagers that stand to benefit from cuts as soon as March.
“There’s been a sea change in investors’ perceptions of where the Fed is headed with policy,” said Chris Ahrens, a strategist at Stifel Nicolaus & Co. “Not only do they see the Fed as done, but they are pricing in two cuts by the middle of next year.”