(Bloomberg) -- Traders are taking stock in the $28 trillion Treasury market after days of frenetic price action, nudging long-term yields down from their highest since July as they assess the latest economic data and the impact of a Republican sweep in the US election.
US yields were modestly lower across the curve in late morning trading on Thursday in New York as investors parsed evidence of still-healthy demand for US workers against a slight pickup in core producer prices. The benchmark 10-year yield was down about 5 basis points at around 4.4%, after earlier touching 4.48%, a level it hasn’t reached since July 1.
Helping fuel the move in US bonds, European sovereign debt rallied earlier amid speculation that the European Central Bank could push through a super-sized rate cut next month. US swaps traders, who are pricing in about an 72% chance that the Federal Reserve will lower interest rates again in December, are looking to remarks from Chair Jerome Powell scheduled for 3 p.m. New York time. Powell’s appearance will come after an array of central bank speakers on Wednesday showed widespread uncertainty on the rate path.
“It’s been a very wild ride for the Treasury market in wake of the election just because there’s still a lot up in the air,” said Gennadiy Goldberg, head of interest rate strategy at TD Securities. “Yields have been whipsawed. The market is still trying to focus on fundamentals as best they can — growth, inflation and the Fed.”
Goldberg said economic data has been consistent with a theme of stronger-than-expected growth, sticky inflation and yields possibly staying higher for longer than many anticipated. Investors are also awaiting clarity on which policies President-Elect Donald Trump and his team will actually push through next year on tariffs, taxes and immigration, Goldberg said.
Applications for US unemployment benefits fell to the lowest level since May last week, signaling there is still a healthy demand for workers after recent storms and labor strikes. Meanwhile, producer prices picked up in October, rising slightly above the Bloomberg median forecast, driven by gains in some categories that feed into the Fed’s preferred inflation gauge.
The rise in yields that came after Thursday’s fresh economic data was supported by a series of block sales of both 5- and 10-year Treasury note futures.
In money market derivatives, a large block trade in futures on the Secured Overnight Financing Rate supported a bid in the front-end of the Treasury market. The transaction was in the December 2025 futures, and likely a purchase of the contract — a position that will profit if the Fed cuts rates more over the next year than the market is currently pricing.
A Bloomberg index of Treasury returns was up just 0.63% this year as of Wednesday’s close, putting it on the cusp of posting a loss if yields break higher again. That gauge had risen about 4.6% as of Sept. 17, when the benchmark 10-year yield hit its lowest level of the year at 3.6%.
“Our call is 10-year yields remain around current levels,” Dennis DeBusschere, co-founder and chief market strategist at 22V Research, said in a note with his colleagues. But US economic growth “above 2.5% will lead to higher yields and a potential break above 4.55% on the 10-year. That level of yield would be a headwind for small caps, debt-risk names, and other riskier factors.”
©2024 Bloomberg L.P.