US Treasuries fell on Monday as traders awaited a hefty week of economic data and speeches from Federal Reserve officials that will likely determine expectations for the central bank’s policy decision later this month.
Yields rose to session highs in mid-morning trading in New York as the ISM manufacturing and construction spending report beat forecasts and suggested the economy was gaining renewed vigor. The data kicked off a busy week, with the calendar culminating in the November jobs report Friday.
The five-year yield rose as much as 9 basis points to near 4.14%, clipping some of the bond market’s late-November rally. The five-year tumbled 25 basis points last week. A heavy slate of corporate bond offerings contributed to the broad jump in yields on Monday, traders said.
Fed officials speaking Monday include Governor Christopher Waller and New York Fed President John Williams, with Chair Jerome Powell speaking Wednesday.
“The question for every investor with valuations here,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities, is whether a combination of “strong growth, inflation contained to some prices lower, good private sector jobs, and lower rates,” can prevail.
The final Fed decision for this year looms on Dec. 18 and traders currently see a third consecutive rate cut as a coin toss. Traders are pricing in 14 basis points of easing at this month’s decision, or roughly a 56% chance of a quarter-point cut.
The central bank has already trimmed policy by three-quarters of a point to a range of 4.5% to 4.75%, and market pricing for the meetings ahead will hinge on the tone of this week’s labor elements in the manufacturing and services reports, along with Jolts job openings due Tuesday, and ADP private sector hiring on Wednesday.
Pause Foreseen
Traders expect the Fed will likely pause in cutting rates early next year, with 32 basis points of total easing priced into the three meetings through. The decisions early next year come against the backdrop of the incoming Trump administration, which is seeking stronger economic growth via tax cuts and deregulation, alongside higher tariffs that are seen as inflationary.
Patricia Zobel, head of macro and economic research at Guggenheim Investments, said she’s focused on Fed officials’ updated rates projections that come out this month.
“There’s a lot of uncertainty about the appropriate setting of monetary policy and that includes on neutral,” said Zobel, who previously worked for over 20 years at the New York Fed in the markets group.
The greenback got a boost from the higher Treasury yields, with the Bloomberg Dollar Spot Index gaining 0.8% on Monday. In Europe, the spread on French debt over its German peers jumped 4 basis points to 87 basis points amid ongoing concern that the French government may be toppled.
France’s government offered a final-hour concession on the 2025 budget, seeking to avoid being ousted from power in a no-confidence vote that would plunge the country into financial and political uncertainty.
“We are going to watch a slow-moving locomotive crash shortly in Europe, as sovereign risk gets repriced as French politics explodes,” said John Brady, managing director at RJ O’Brien.
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