The U.S. bond market is showing signs of stabilization following a two-month selloff, with investors starting to step in as yields test new highs. Since Donald Trump’s presidential win, persistent inflation, and solid economic data have driven 10-year Treasury yields higher, but there remains no clear consensus on the direction they will take.
After reaching 4.5% on November 15, the benchmark yield quickly reversed course amid significant buying interest and has not breached that level since. Last week, 10-year yields closed at 4.4%, and in early Asian trading on Monday, they slipped further to around 4.36%, as traders reacted to Trump’s selection of a Treasury secretary nominee.
Felipe Villarroel, a portfolio manager at TwentyFour Asset Management, suggests that 4.25% to 4.5% is a reasonable range for the 10-year yield but warns that volatility is likely to continue. He cites the ongoing inflation concerns and the uncertainty around how Trump’s policies could influence future price pressures.
Currently, swaps traders are pricing in a nearly 50-50 chance of the Federal Reserve cutting interest rates at its upcoming meeting. However, they are anticipating a cumulative reduction of about 66 basis points by December 2025.
According to Bloomberg’s Alyce Andres, the 10-year yield is stabilizing around 4.40%, with little movement expected unless new catalysts emerge. One potential driver could be clarity on who will head the U.S. Treasury, a crucial position for shaping fiscal policy.
However, some strategists believe the 10-year yield could still climb higher, potentially approaching 5%, a level last seen in October 2023. If Trump were to implement significant tax cuts and raise tariffs, yields could push higher, as reflected in debt options trading, which shows hedging against the risk of rising rates.
This week, traders will be looking closely at the release of the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, due on Wednesday. With U.S. markets closing for Thanksgiving on Thursday and an early close on Friday, low trading volumes could lead to more pronounced price fluctuations if the PCE reading deviates significantly from expectations.
Fund managers at Pacific Investment Management Co. (PIMCO) view Treasury yields above 4% as an attractive opportunity in their own right. Additionally, with Treasury bonds moving in the opposite direction of stock prices, they are starting to fulfill their traditional role as a hedge against equity market downturns.
Erin Browne of PIMCO told Bloomberg Television that Treasuries, especially at yields above 4%, are “a very low volatility asset with a high return.” She added that if the 10-year yield rises to 5%, she would be “really interested in buying more aggressively.”
The bond market has faced significant volatility over the past two months, defying expectations that it would rally once the Fed began cutting interest rates. Instead, yields have surged higher as a robust economy and Trump’s victory recalibrated expectations for future rate moves.
Trump’s nomination of Scott Bessent, the founder of macro hedge fund Key Square Group, as Treasury secretary could play a pivotal role in shaping future market dynamics. Bessent, known for his fiscal conservatism, will oversee the government’s substantial debt sales. His experience in the markets and previous comments on controlling spending have led some strategists to view his appointment as a positive development for bond markets.
Bessent has been a vocal critic of the Biden administration’s approach to federal debt management and has questioned the Fed’s large rate cut in September. Wall Street is hopeful that his appointment could help guide U.S. fiscal policy towards a more market-friendly direction, providing some stability to the bond market after a turbulent period.
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