(Bloomberg) -- A seismic selloff in Treasuries stalled Thursday as investors’ attention turned from Donald Trump’s victory in the US presidential election to interest-rate decisions by major central banks including the Federal Reserve.
The yield on 30-year US bonds fell about five basis points to 4.56% after a 17-basis-point surge Wednesday, the biggest since March 2020. UK debt rebounded from three days of losses as the Bank of England delivered an expected rate cut, while euro-area notes fell as investors digested news of snap elections in Germany.
Traders are looking to central bankers for clues on how Trump’s tax-cut and tariff policies could alter their outlook for global growth and inflation. Fed Chair Jerome Powell holds a press conference after Thursday’s decision, expected to be a quarter-point rate cut.
The Bank of England lowered borrowing costs by that increment and warned that the UK budget unveiled Oct. 30 could drive up inflation by half a point compared with its August forecast. Governor Andrew Bailey, speaking after the meeting, said a gradual approach would allow the central bank to observe the budget’s effects.
“Chair Powell’s commentary on the current economic environment and how the next US president could likely influence the outlook will be of huge significance,” said Michiel Tukker, a rates strategist at ING.
US economic data released Thursday included a higher-than-expected estimate of third-quarter unit labor costs growth and weekly initial jobless claims near the lowest levels of the past several month. Ten-year yields were lower by about seven basis points to 4.36% Thursday.
Elsewhere, Sweden’s Riksbank cut rates by half a point as expected. That contrasted sharply with neighboring Norway’s central bank, which kept its benchmark at 4.5% amid a weak krone.
The flurry of decisions sets the stage for more volatility to cap an already turbulent week. US Treasuries rallied at the start of the week, with the 10-year yield dropping 22 basis points in two sessions, after weekend polls showed US Vice President Kamala Harris gaining ground. A frenzy of trading followed as investors adjusted to results indicating Trump’s victory.
In his campaign, Trump promised to wield tariffs more aggressively against US trading partners, deport millions of undocumented immigrants and extend his 2017 tax cuts. Those policies, if enacted, could put upward pressure on prices, and Wall Street economists including those at JPMorgan Chase and Co. see fewer Fed cuts than they did before the election.
Money markets have priced in around 23 basis points of easing for Thursday’s decision and a combined 107 basis points of cuts over the next 12 months. That compares to 115 basis points on Tuesday, before the election result became clear.
UK money markets have likewise curbed expectations for BOE easing since the fiscal plan announcement, helping push most gilt yields to the highest levels in a year.
“The sharp post-budget selloff was as much of reaction to the OBR’s assessment of near-term inflation as to higher borrowing,” said Moyeen Islam, a strategist at Barclays Plc, referring to the Office for Budget Responsibility, the UK’s fiscal watchdog.
Bond investors also are grappling with German Chancellor Olaf Scholz’s call for a snap election, which raises the prospect that a new administration may finance more spending in Europe’s largest economy. The nation’s 30-year yield jumped as much as 10 basis points to 2.75% and the 10-year rose above its swap rate counterpart for the first time since Bloomberg started collecting the data in 2007.
“From a market perspective, key would be whether we could get any relaxation of the fiscal rules,” said Mohit Kumar, chief European strategist at Jefferies. “There is a growing concern that for Germany to come out of the current low growth regime, they will need to provide additional fiscal stimulus.”
(Updates prices throughout.)
©2024 Bloomberg L.P.