Buyers Flock to Bonds After 30-Year Yield Hits Highest Since May
(Bloomberg) -- The highest 30-year US Treasury yield in almost six months attracted buyers on Monday, helping buoy bonds as investors assess how Donald Trump’s presidential victory may affect the economy and Federal Reserve’s policy.
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Yields on the longest-dated bonds hovered near 4.61% in New York afternoon trading after climbing as much as six basis points to 4.68%, the highest since late May. Flows that aided the retreat included futures block trades, while sales of new corporate bonds were expected to entail supportive hedging flows.
The price action echoes what happened Friday, when a batch of strong economic data cast additional doubt on whether the Fed will cut interest rates again next month and sent the yield on 10-year Treasuries briefly to 4.5%. A large block trade in 10-year note futures shortly afterward signaled that level was attractive for at least one trader.
“The starting point in yields is so elevated that it just gives you much bigger cushion to be wrong,” said Ed Al-Hussainy, a strategist at Columbia Threadneedle.
On Monday, nine companies were selling new high-grade corporate bonds to kick off what’s expected to be the final big week until December for credit supply, which can entail hedge-related flows in the Treasury and interest-rate swap markets. Four of the offerings included 30-year tranches.
Additionally, the uncertainty over Trump’s pick for US Treasury secretary is putting pressure on the market. Trump’s transition team is considering pairing Kevin Warsh, a former Federal Reserve official, in the Treasury secretary role, with hedge fund manager Scott Bessent as director of the White House’s National Economic Council, according to people familiar with the matter.
Bonds have been declining for much of the past two months as stronger-than-expected economic data prompted traders to rein in expectations for Fed rate cuts. The selloff has largely extended since the Nov. 5 election, when Trump’s win heightened concerns over how the president-elect’s promises of steeper tariffs, lower taxes and looser regulations will impact rates.
The Bloomberg index of Treasury returns saw its year-to-date return shrink to about 0.7% as of Friday’s close, from a peak of 4.6% on Sept. 17, the day before the Fed reduced borrowing costs for the first time since 2020.
“There is a general acknowledgment that growth is strong, inflation is not completely slain, that budget deficits likely widen and that there is little reason for the long end to go down,” said Michael Contopoulos, head of fixed-income at Richard Bernstein Advisors LLC.
Interest-rate swaps showed that traders see there’s almost an equal chance for the Fed to stay put or cut rates by another quarter-point at the policy meeting ending Dec. 18. Investors expect the central bank’s key borrowing costs to fall to about 3.8% by the end of next year, or about 75 basis points below the current level. Fed Chair Jerome Powell said last week that the central bank isn’t “in a hurry” to lower interest rates.
On Friday, Bank of America’s economists predicted that the Fed will only lower interest rates by another 75 basis points to end its cycle of monetary easing at 3.875% in June. Previously, the economists led by Aditya Bhave called for a total of reduction of 150 basis points. Bhave said he and his team revised the Fed call in part due to the concern that Trump’s policy mix may push up inflation.
For strategists at JPMorgan Chase & Co., yields on short-term Treasuries notes have climbed enough to be attractive. Strategists led by Jay Barry recommended their clients going long two-year notes on Friday, saying the risks of further selloff in the short-term notes are contained, as long as the Fed doesn’t raise interest rates again.
--With assistance from Edward Bolingbroke.
(Updates changes in yield levels throughout.)
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