US Treasury 10-year yields (%) daily chart
The turnaround came as traders are starting to digest a more dovish Fed outlook since last week. We’ve gone from seven rate cuts priced in to start the year down to one rate cut, before moving towards two rate cuts now. To be more exact, Fed funds futures are reflecting ~45 bps worth of rate cuts currently for 2024. It was roughly 31 bps just at the start of last week.
And that has helped to keep a modest bid in bonds, with Treasury yields now down to its lowest in a month. So, have we reached the peak in yields for this year?
Well, higher yields wasn’t supposed to be part of the script to begin with. So, to see 10-year yields hit 4.70% at the end of last month was already a big win for bond sellers. But not everyone is abandoning that view as of yet, even with the recent poor US data. The bond king himself is arguing for yields to move to 5% next, rather than 4%.
That being said, there’s a good argument as well that we could see yields cool in the months ahead.
As things stand, economic data is paramount and is a key driver of market sentiment. We’ve already got a taste of how quickly things can change from the softer US data last week. And if that keeps up, especially with softer labour market conditions, it could compel traders to consider more rate cuts so long as inflation doesn’t run much hotter from here.
That said, the oversupply in Treasuries was already a key factor driving yields higher last year. And that might come into play again, should we see economic data take more of a backseat that is.