Investors await data releases for signals on Fed’s next moves
by James Hirai and Ezra Fieser
Treasuries were largely steady, but measures of volatility pointed to the potential for sharp swings in coming days as the US emerges from its longest government shutdown on record.
Yields on US 10-year debt held firm and were also unchanged on the month at 4.08% on Thursday, while money markets are broadly split on the Federal Reserve lowering interest rates a quarter-point next month, according to swaps tied to policy-meeting dates.
However, the ICE BofA MOVE Index, which estimates bond-market volatility, has jumped to a one-month high after recently reaching a four-year low, indicating the incoming flurry of economic data to be published by the government may spur action in markets.
Investors in the $30 trillion market have been waiting for government economic reports to begin flowing again for clues on where the Federal Reserve will take interest rates at the bank’s final meeting of the year. They have been relying on private data in the absence of official numbers, with the latest figures from ADP Research signaling a slowing US jobs market.
“US Treasury investors are bracing for more volatility now that the government will start releasing more data again,” said Michiel Tukker, senior European rates strategist at ING Groep NV in a client note. He added that any new inflation and jobs data will be able to push around the front end of the curve given markets have not fully settled on the Fed’s next steps.
That was made more challenging on Wednesday after the White House Press Secretary Karoline Leavitt said the October jobs and consumer price index reports are unlikely to be released.
Over the course of the shutdown, Treasuries have been stuck in a holding pattern, with yields on 10-year notes fluctuating around the 4% level. A Bloomberg index of Treasuries has returned 0.4% over the span, adding to the market’s best year since 2020.
In the days leading up to the re-opening, however, traders piled into Treasury options targeting a drop in the 10-year yield below 4%, betting the cascade of data will show the economy is weakening.
“Yields are stuck in a relatively narrow range until there is greater clarity on the direction of the real economy and the FOMC’s bias ahead of the December 10th rate decision,” Ian Lyngen, head of US rates strategy at BMO Capital Markets wrote in a note Wednesday. “The mixed private data releases have left us more concerned about the downside for the labor market than anything else.”
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