The highest Treasury yields in months — reached Friday after a batch of strong economic data cast additional doubt on whether the Federal Reserve will cut interest rates again next month — proved appealing to bond investors.
In particular, the benchmark 10-year Treasury yield topped 4.5% for the first time since May after the release of retail sales data including hefty upward revisions. A large block trade in 10-year note futures shortly afterward signaled that for at least one trader, that was cheap enough. Within a few hours, the yield was back to around 4.43%, adding about $5 million to the value of the block.
Yields extended their retreat from session highs as crude oil and US equity benchmarks declined, stoking demand for bonds. Ten-year yields fell to about 4.40%, two-year yields to about 4.27%, a drop of about 10 basis points from the day’s high.
“The 10-year Treasury at a 4.5% yield is incredibly attractive,” said Mike O’Rourke, chief market strategist at Jonestrading. “And when equities give up ground there is a good haven demand for Treasuries.”
The futures block trade consisted of 16,000 December 10-year note contracts. Traders’ identities aren’t disclosed.
The market’s earlier declines signaled a drop in confidence in an interest-rate cut next month as resilient economic data empowers Fed officials to take a more cautious approach to easing.
In the swaps market, traders on Friday temporarily priced in an only 50% chance the Fed delivers a quarter-point reduction at its December gathering, down from about 80% earlier in the week. As the bond market stabilized, the December rate-cut odds recovered to about 60%.
The market had begun paring back expectations for a December reduction on Thursday after Fed Chair Jerome Powell said economic resilience gave officials room to ease more carefully. Boston Fed chief Susan Collins said on Bloomberg Television the central bank’s decision will be guided by incoming data and that a cut next month remains on the table.
“There’s little support for Fed easing,” said Bob Sinche, a longtime markets veteran and strategist at Global Macro & Markets. “Chair Powell raised uncertainty about the need for a December rate cut and data out today do not point convincingly in favor of an immediate rate reduction.”
The Chicago Fed’s Austan Goolsbee on Friday said as long as inflation continues down toward the central bank’s 2% goal, interest rates will be “a lot” lower over the next 12 to 18 months.
Still, traders and economists have been reassessing their expectations for cuts throughout 2025 since Donald Trump won the US presidential election on Nov. 5. His policy vows, including higher tariffs, are seen by some on Wall Street as likely to spur inflation — and therefore alter the Fed’s course.
Swaps contracts imply about 77 basis points worth of easing by next December, and several Wall Street economists have dialed back their forecasts for 2025 cuts. JPMorgan Chase & Co., for one, hinted after Powell’s remarks on Thursday that policymakers could switch to a slower pace of easing as soon as January.
To Guy LeBas, chief fixed income strategist for Janney Montgomery Scott, a 25-basis-point reduction next month remains likely, though the path beyond is less certain.
“I think they will skip doing anything in January,” he said. “The Fed will probably slow the pace at that point, to maybe quarterly cuts thereafter.”
A Bloomberg gauge of the Treasury market’s returns fell this week, leaving the index up just 0.6% so far this year.
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