Treasuries Slide for Third Straight Day as Fed-Cut Bets Wane

Treasury yields climbed for the third straight day amid growing expectations that the Federal Reserve will lower interest rates at a gradual pace and as traders fretted about the potential inflationary implications of the US presidential election.

Yields climbed across maturities on Wednesday, with the benchmark 10-year rate reaching 4.25%, its highest since July. Rising speculation in betting markets that former President Donald Trump will win the Nov. 5 vote is also helping push up yields as he’s seen as likely to stoke growth and inflation through an agenda of tax cuts and steeper tariffs. Signs of a resilient US economy and stubbornly high inflation have also fueled the move.

Swaps prices reflect less than a 100% certainty that the central bank reduces rates at each of its two remaining policy meetings. The bond market is also trimming bets on the degree of Fed rate reductions over the next year. Traders will get more clarity next week on how much officials are likely to ease, with the release of a key labor -market reading for October.

“A lot of people had assumed, ‘Hey the Fed started the cutting cycle so yields are going down,’ and when that didn’t come to fruition there’s repricing of those expectations,” said Kathryn Kaminski, chief research strategist and portfolio manager at quant fund AlphaSimplex Group. The firm’s systematic models remain net long Treasuries, although with the trend signals weakening during the recent selloff those positions have been trimmed, she said.

“There’s been a little bit of a pendulum swing with a repricing of Fed expectations after the recent inflation data and strong labor-market data - so yields are selling off,” she said.