(Bloomberg) — Treasuries rose for a second session as traders maintained wagers on additional rate cuts next year after a Federal Reserve meeting that proved less hawkish than anticipated.
Yields fell across most tenors, with the rate on benchmark 10-year notes touching the lowest level in nearly a week before closing little changed. It was an extension of gains that started Wednesday after Fed Chair Jerome Powell downplayed dissenting votes on a quarter-point interest-rate cut, and officials said they would start buying short-term Treasury securities to ease strains in US funding markets.
“The much-anticipated hawkish cut from the Fed was over-shadowed by the announcement of reserve management purchase operations,” a Societe Generale team led by Subadra Rajappa said Thursday. “We remain biased towards lower yields as investors tend to turn cautious into year-end.”
Thursday’s gains in all but the longest-dated Treasuries held following a $22 billion sale of 30-year bonds that was awarded at 4.773%, slightly below the yield just prior to the bidding deadline — a suggestion of resilient demand. At the close of New York trading, 30-year yields were less than one basis point higher.
Earlier, a higher-than-expected reading of initial jobless claims Thursday underpinned the bid for Treasuries, with the release coming in at 236,000 in the week ended Dec. 6, compared to the 220,000 expected in Bloomberg’s survey of economists. The jump in claims was the highest since the early days of the pandemic, although the reports tend to be volatile around US holidays.
Following the Fed meeting, money markets are now pricing a roughly 50% chance that the US central bank will deliver its first quarter-point cut of 2026 in March, with a total of two reductions seen next year — about on par with market expectations heading into the decision.
The Fed’s economic projections released Wednesday maintained the official forecast for another reduction in borrowing costs next year despite concerns that policymakers would hew to more hawkish expectations in the months ahead.
What Bloomberg Strategists say…
“A series of dovish moves by the Federal Reserve at Wednesday’s monetary policy meeting has prompted bond investors to once again wager on a soft-landing scenario that’s reviving the steeper yield curve trade. Long-bond supply Thursday will add to the theme.”
The Fed’s meeting was “universally dovish, in my mind,” Brij Khurana, a portfolio manager at Wellington Management Company, told Bloomberg Radio Thursday. “They’re still talking about cuts for next year and that is very, very different than what’s happening in the rest of the world.”
Starting Friday, meanwhile, the Fed will begin buying $40 billion of Treasury bills per month in a bid to ease pressures in funding markets — a move that many on Wall Street hadn’t expected to begin until early next year. Increases in short-term rates into the end of the year, when banks typically pare their footprint in money markets, came quicker than expected, Powell told reporters Wednesday.
“The balance sheet expansion is important,” said Mohit Kumar, chief economist and strategist for Europe at Jefferies. “Given that the Treasury is skewing issuance towards T-bills and short end, Fed purchases will be stimulative.”
Elsewhere, euro area and UK bonds held slight gains and tracked the rally in Treasuries. Earlier, Japanese bonds gained after an auction of 20-year debt had the best demand ratio in more than five years as higher yields lured investors. Australian debt jumped after the economy unexpectedly shed jobs in November, which could allow the central bank to extend a rate pause in the face of sticky inflation.