(Bloomberg) — The highest yields on 30-year U.S. Treasury bonds in nearly six months attracted buyers on Monday, boosting bonds as investors assess how Donald Trump’s presidential victory will impact the economy and Federal Reserve policy could influence.
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Yields on the longest-dated bonds hovered around 4.61% in afternoon trading in New York, after rising as much as six basis points to 4.68%, the highest level since late May. Flows that contributed to the pullback included futures block trades, while new corporate bond sales were expected to bring supportive hedging flows.
The price action mirrors what happened Friday, when a string of strong economic data raised additional doubts about whether the Fed will cut rates again next month, briefly sending 10-year Treasury yields to 4.5%. A large block trade in 10-year bond futures shortly thereafter indicated this level was attractive to at least one trader.
“The baseline for returns is so lofty that it gives you a much greater opportunity to make mistakes,” says Ed Al-Hussainy, strategist at Columbia Threadneedle.
On Monday, nine companies sold new high-quality corporate bonds to kick off what is expected to be the last big week until December for lending, which could bring hedging-related flows into the government bond and interest rate swap markets. Four of the offers include 30-year tranches.
In addition, the uncertainty about Trump’s choice for the appointment of a US Secretary of the Treasury is putting pressure on the market. Trump’s transition team is considering pairing Kevin Warsh, a former Federal Reserve official, in the role of Treasury secretary with hedge fund manager Scott Bessent as director of the White House National Economic Council, according to people familiar with the matter.
Bonds have fallen in value for much of the past two months as stronger-than-expected economic data prompted investors to temper their expectations for Fed rate cuts. The sell-off has largely continued since the Nov. 5 election, when Trump’s victory heightened concerns about how the newly elected president’s promises of steeper rates, lower taxes and looser regulations will affect tariffs.
The Bloomberg Treasury index saw its yield fall this year to about 0.7% as of Friday’s close, after peaking at 4.6% on September 17, the day before the Fed cut borrowing costs for the first time since 2020.
“There is a general recognition that growth is strong, inflation has not yet been fully suppressed, budget deficits are likely to widen and there is little incentive for the long end to be down,” said Michael Contopoulos, head of fixed income at Richard Bernstein Advisors. LLC.
Interest rate swaps show that traders see near-even odds for the Fed to stay put or cut rates by another quarter point at the policy meeting that ended Dec. 18. Investors expect the central bank’s key borrowing costs to fall to around 3.8%. by the end of next year, or about 75 basis points below current levels. Fed Chairman Jerome Powell said last week that the central bank is in no “hurry” to cut interest rates.
On Friday, Bank of America economists forecast that the Fed will cut rates by only another 75 basis points to end the cycle of monetary easing in June at 3.875%. Earlier, economists led by Aditya Bhave called for a total cut of 150 basis points. Bhave said he and his team revised the Fed’s call in part because of concerns that Trump’s policy mix could push up inflation.
According to strategists at JPMorgan Chase & Co. yields on short-term government bonds have risen sufficiently to be attractive. Strategists led by Jay Barry advised their clients on Friday to buy long bonds with a maturity of two years. They said the risks of a further sell-off in short-term bonds are limited as long as the Fed does not raise rates again.
–With assistance from Edward Bolingbroke.
(This will update the changes in yield levels.)
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