Treasury yields rose on Thursday, yet ended November with their biggest monthly declines in four years on signs of easing inflation.
What happened
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 7 basis points to 4.715% from 4.645% on Wednesday. It fell 35.4 basis points this month, the biggest monthly decline since March, according to 3 p.m. Eastern time figures from Dow Jones Market Data. Yields move in the opposite direction to prices. -
The 10-year Treasury yield
BX:TMUBMUSD10Y
jumped 7.9 basis points to 4.349% from 4.270% Wednesday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
advanced 6.1 basis points to 4.511% from 4.450% late Wednesday. - For all of November, the 10-year rate dropped 52.5 basis points and the 30-year yield fell 51.1 basis points — the biggest monthly declines since August 2019.
What drove markets
The narrative of cooling price pressures in developed economies was supported earlier on Thursday, when a report showed annual eurozone inflation fell to 2.4% in November, the lowest in more than two years.
In the U.S., the personal consumption expenditure price index for October, the Federal Reserve’s favored inflation gauge, also showed inflation easing. The cost of goods and services was flat last month, while the increase in inflation over the past year decelerated to 3% from 3.4% in the prior month.
Markets are pricing in a 95.6% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on Dec. 13, and a 90% chance of no action by January, according to the CME FedWatch Tool. The chance of at least a 25-basis-point rate cut by March is seen at 44.6%, up from 11.5% a month ago.
Also on Thursday, New York Fed President John Williams said he thinks interest rates are at or near their peak. Meanwhile, economists said they don’t expect Fed Chairman Jerome Powell to say anything that would bolster the market’s rising expectations for interest-rate cuts.
In other U.S. updates on Thursday, initial jobless claims rose 7,000 to 218,000 for the week that ended Nov. 25, below economists’ expectations. Pending home sales fell 1.5% to a record-low reading of 71.4 in October, the lowest level since the index was started in 2001.
What analysts are saying
Thursday’s PCE data “is likely to cement expectations that the monetary policy inflection point is close, and the Fed will make at least one rate cut in the first six months of 2024,” though markets are pricing in two rate cuts in the first half, said Sonu Varghese, global macro strategist at Carson Group.
“Fed officials have already acknowledged that inflation is easing, and that can happen in the face of a strong economy and low unemployment, essentially laying the groundwork for rate cuts,” Varghese wrote in an email.
Read the full article here
