Treasuries Rally With Global Bonds as Traders Lift Rate-Cut Bets

Treasuries rallied along with global bonds, sending benchmark yields to multi-month lows, as traders bet the world is entering a new, disinflationary period by wagering on more interest-rate cuts next year.

US 10-year Treasury yields — the global risk-free rate — slid to the lowest since July, down well over a percentage point from a 16-year high in October of 5.02% The similar-maturity German Bund yield plunged below 2% and the rate on equivalent gilts slumped to the lowest since April. Wednesday’s move was sparked by a softer-than-expected UK inflation figure. Yields the Fed-policy sensitive 2-year Treasury note was down 10 basis points late in the session.

The inflation data encouraged investors to lean further into bets for aggressive monetary-policy easing next year by the Federal Reserve and other major central banks with price pressures seemingly on a course to reach their targets. Swaps traders have ramped back up the amount of cuts to come from the US central bank in 2024 to about 150 basis points — equivalent to six quarter-point rate reductions.

Our view is “that the Fed does cut a few times next year, that growth does slow down – sort of 1% — which will look and feel pretty recessionary for some people,” Tom Porcelli, chief US economist at PGIM Fixed Income, said on Bloomberg television. “When I think about the next year or two, I don’t really see any meaningful catalyst to sort of break us out of what could be a really sluggish growth backdrop.”

Benchmark 10-Year Treasury Yields Have Tumbled Since Oct