Bond Market Sees Calm After Two-Month Turmoil
After a tumultuous two months, the US bond market is finally showing signs of stability, with investors snapping up bonds whenever yields reach new highs. This shift comes on the heels of Donald Trump’s presidential victory, persistent inflation, and robust economic data, which have driven 10-year Treasury yields up sharply since mid-September.
Yields Test New Peaks, Then Reverse Course
The 10-year Treasury yield briefly topped 4.5% on November 15, but quickly retreated as investors swooped in to buy. Since then, yields have remained below that level, closing at 4.4% last week and dipping further in Asian trading on Monday to around 4.36%. Fund managers at Pacific Investment Management Co. believe yields above 4% are attractive, especially given their traditional role as a hedge against stock market volatility.
Treasuries Regain Favor as Low-Volatility Asset
Pimco’s Erin Browne notes that Treasuries offer a unique combination of low volatility and high returns, making them an appealing option for investors. If yields were to rise to 5%, Browne says she would become even more aggressive in her buying.
New Treasury Secretary Nominee Sparks Optimism
Trump’s nomination of Scott Bessent, a macro hedge fund manager, as the next US Treasury secretary has been met with optimism by strategists. Bessent’s markets experience and past comments on reining in spending have led some to view him as a fiscal hawk. However, others caution that uncertainty remains, and investors are taking a wait-and-see approach.
Market Uncertainty Persists
Subadra Rajappa, head of US rates strategy at Societe Generale, notes that investors lack conviction on the direction of yields, leading to a cautious approach. Felipe Villarroel, a portfolio manager at TwentyFour Asset Management, sees 4.25% to 4.5% as fair value for the 10-year yield, but expects continued volatility due to inflation concerns and uncertainty around Trump’s policies.
Economic Data Takes Center Stage
This week, traders will focus on the release of the Fed’s preferred inflation measure, the personal consumption expenditure price index, on Wednesday. The report’s timing, just before the Thanksgiving holiday, may lead to thin trading volume and outsized price swings if the reading deviates significantly from consensus forecasts.
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