Swap traders are pricing in 24 basis points of easing for the November Fed meeting, meaning that a quarter-point reduction is no longer seen as guaranteed.
A total of 150 basis points of easing is priced in through October 2025, down from the expectations of reductions about 200 basis points in late September.
Ten-year Treasury yields have jumped more than 30 basis points since the Fed’s meeting last month, approaching 4% for the first time since August.
Instead, two-year yields jumped 36 basis points last week, the most since June 2022.
At 3.9%, the two-year yields are only 6 basis points below 10-year notes, narrowing from 22 basis points in late September.
Some believe that the balance has shifted away from growth concerns as a result of the Fed’s disproportionate reduction last month and China’s unexpected stimulus binge.
According to Brandywine Global Investment Management portfolio manager Tracy Chen, “the 50-basis-point cut should be out of question now.”. “There is a greater chance of a no landing due to China’s stimulus and the Fed’s easing. “.
As crude oil prices have surged, worries about inflation are resurfacing. Rebounding from a three-year low in mid-September, the 10-year breakeven rate, which gauges bond traders’ expectations for inflation, hit a two-month high. That comes before important consumer price data that is expected the following week.
For the Fed meeting in November, swap dealers are pricing in 24 basis points of easing, which means that a quarter-point reduction is no longer viewed as certain. Through October 2025, a total of 150 basis points of easing are priced in, which is less than the 200 basis point reductions that were anticipated in late September.
The Fed’s easing of expectations has put a dampener on the bond-buying frenzy that has helped Treasuries record their best run of five consecutive monthly gains since 2010. Since the Federal Reserve’s meeting last month, the yield on ten-year Treasury notes has increased by over thirty basis points, and it is now almost four percent for the first time since August.
Chief investment officer of Amerant Investments Inc. Baylor Lancaster-Samuel stated, “We have evidence that the labor market is in fine fettle. The Fed has highlighted the importance of the labor market in its dual mandate, which prompted the jumbo cut last month.”. It falls into the “Be careful what you wish for” category, to be sure. “.”.
A popular bet on aggressive Fed easing in recent years, known as “curve steepening,” was also overturned by the evolving narrative. Traders believe that short-term notes would perform better than longer-term debt in such a strategy. As an alternative, two-year yields increased last week by 36 basis points, the highest since June 2022. The two-year yields have narrowed from 22 basis points in late September to just 6 basis points below the 10-year notes at 3 point 9 percent.
statements made by strategists at Bloomberg.
“Years rose on Friday as investors made a concerted effort to lock in rates before they increased and as residual longs withdrew. The possibility exists that a soft landing will be foregone in favor of no landing because there are indications of inflation, few concerns about the labor market collapsing, and positive economic momentum. “.
FX/rates strategist at Markets Live, Alyce Andres.
The consumer price report is looming large next week, with attention on inflation once again. It is anticipated to demonstrate that the core consumer price index decreased to 0.2 percent last month following a 0.3 percent increase in September. Fed Governor Christopher Waller has said inflation data he got shortly before the Sept. He was eventually persuaded to back a half-point move by the 18 policy meeting.
Indeed, the current pricing in the market indicates that the best-case scenario for investors is still a soft landing. The 10-year breakeven rate is still roughly in line with the Fed’s 2 percent inflation target at 2 points 2 percent. Trader expectations on the swap market indicate that the Fed will conclude its easing cycle in 2027 at a rate of roughly 2 percent, which is in line with the generally accepted neutral threshold.
The latest job data, according to Jamie Patton, co-head of global rates at TCW, is insufficient to alter the Fed’s need to stick to its easing path because the entire body of data, which also includes declining quit rates and rising credit card and auto loan default rates, indicates a softening labor market and downside risks to the economy.
Our overall assessment that the labor market is weakening is unaffected by a single data point, according to Patton.
She added to her curve-steepener position by buying additional two- and five-year notes during Friday’s selloff, she said. Though doing so would increase the chance that the Fed would keep borrowing costs “too high for too long and ultimately cause a larger downturn.” “The reignition of inflation fears could keep the Fed from cutting.”. “.
What’s to See.
financial information:.
October. 7: Monthly budget statement and consumer credit.
Oct. Trade balance and NFIB small business optimism rank eight.
October. 9. Wholesale trade sales and inventories; MBA mortgage applications.
October. 10. Consumer price index; first-time claims for unemployment.
Oct. Producer Price Index (11), U.S. sentiment, expectations for inflation, and Mich.
Fed calendar:.
October. Seventh: Fed Governor Michelle Bowman; Fed President Neel Kashkari of Minneapolis; Fed President Raphael Bostic of Atlanta; St. Alberto Musalem, the President of the Fed.
Oct. 8. Fed Vice-Chair Philip Jefferson; Bostic; Fed Governor Adriana Kugler; Boston Fed President Susan Collins.
October. September FOMC meeting minutes: Collins, Jefferson, Bostic; Dallas Fed President Lorie Logan; Chicago Fed President Austan Goolsbee; San Francisco Fed President Mary Daly.
October. 10. New York Fed President John Williams, Fed Governor Lisa Cook, and Richmond Fed President Tom Barkin.
October. Logan; Bowman; Goolsbee (# 11).
Auction calendar:.
Oct. 7: Bills of 13, 26, weeks;.
Oct. 8: three-year notes; 42-day CMB.
Oct. 10 year notes and 17 week bills.
Oct. Ten: 30-year bonds; four- and eight-week bills.
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