Treasuries sustained small losses as the longest
Yields were higher by as much as three basis points, led by tenors more sensitive to changes in Fed policy. The odds of a December rate cut assigned by the market have slipped amid cautious commentary by several central bank officials. Speaking as US markets closed on Wednesday, Boston Fed President Susan Collins said she favored holding rates steady "for some time."
The five-year tenor led the selloff even as investors face the last of this week's three longer-term Treasury debt auctions, a 30-year bond sale at 1 p.m. New York time. Its yield in pre-auction trading was about two basis points higher on the day at around 4.68%. The Bloomberg Dollar Index fell, its sixth decline in the past seven days.
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While Treasury market reaction to the end of the shutdown — which began Oct. 1 and stopped the flow of most official economic statistics — was limited, measures of volatility pointed to the potential for sharp swings in coming days as it resumes, potentially altering expectations for what the Fed will do.
"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.
The ICE BofA MOVE Index, a gauge of expected bond-market volatility, has rebounded to a one-month high after recently reaching a four-year low.
Investors in the nearly $30 trillion Treasury market 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. Meanwhile, White House Press Secretary Karoline Leavitt Wednesday said the landmark employment report and consumer price index for October are
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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."
