Expectations for the pace of rate cuts are diminishing by the minute. Proof of this is the sales that have been taking place for weeks on the sovereign debt of Western economies. This is especially seen in the United States, waiting on the one hand for the elections and, on the other hand, the two meetings of the Federal Reserve that remain before the end of the course, the first of them next week after the parliamentary elections. White.
Thus, the US 10-year bond returned to trading profitability greater than 4.3% demanded on the secondary market, which has not happened since July. Sales dominated for weeks, when they reached the lowest profitability (highest price) of the year at 3.61%. Since then, the investor has lost 5.5%.
What is the reason for this strong flight of investors? This is mainly due to a cooling of expectations about the pace of interest rate cuts that the Fed will make in the coming months. There are two meetings left before the end of the year. For next week the market has a reduction of 25 points. However, they are divided on whether or not they will see a second reduction at the December meeting. It should be remembered that a little over a month ago, up to 75 points less were deducted from the reference interest rate before the end of the year.
“The U.S. bond market faces a critical two-week period that will likely set the course for the year’s challenge. Key developments begin with Treasury’s announcement of upcoming debt sales and monthly bond data wage, which will indicate whether the economy is slowing down enough to justify further cuts from the Fed,” they explain at eToro.
Precisely, the full report on October employment will be published this Friday, but it promises to be weak since the number of new jobs available fell to its lowest level in more than three years in September and the number of layoffs increased, consistent with a deterioration in the labor market. In contrast, consumer confidence increased in October to its highest level since the start of the year. “Bond prices have been hit by heavy selling as economic resilience casts doubt on further rate cuts,” they add on eToro.
“The current levels offer investors the opportunity to gradually reinvest and reduce risks, but we do not recommend increasing durations aggressively at this time,” emphasizes Julius Baer. “The US economy appears very resilient and the latest data significantly increases the likelihood of a recovery. soft landing”, they add. “In this context, even with rate cuts, yields on the long end of the curve should not fall and could even increase,” they conclude.
