US bond yields rose again on Thursday as traders continued to wait for new data that could provide further clues for Federal Reserve policy. Although the news of the Russia-Ukraine conflict attracted some safe haven buying in recent transactions, bulls still seem unable to dominate the continuous rebound of the bond market.
Market data shows that US bond yields generally rose slightly overnight, continuing the recent sell-off in the bond market. Among them, the yield of 2-year US Treasury bonds rose 3.6 basis points to 4.359%, the yield of 5-year US Treasury bonds rose 2.6 basis points to 4.31%, the yield of 10-year US Treasury bonds rose 1.4 basis points to 4.427%, and the yield of 30-year US Treasury bonds rose 0.7 basis points to 4.605%.
At present, the 10-year US Treasury yield has been consolidating near a five month high for several consecutive days, and traders are waiting for the employment and inflation data to be released in early December in search of new signs about the strength of the US economy.
As investors bet on Trump's victory in the election, US bond yields have continued to rise in the past two months, as analysts predict that Trump may introduce multiple policies to promote economic growth, including immigration reform and tariffs, which could also lead to rising inflation.
Subadra Rajappa, head of US interest rate strategy at Societe Generale, said, "The market is paying attention to signs of geopolitics and Trump policies, and there is currently no clear trend, so the recent changes in yields have been very small
From a news perspective, although the tense situation between Russia and Ukraine continues to attract safe haven buying of US bonds - Putin confirmed on Thursday that he tested a new type of medium range hypersonic missile in combat with Ukraine - the overall weakness of US bonds has not been reversed, largely due to a lack of confidence in the Fed's upcoming interest rate cuts.
There are signs that as the US economy remains more resilient than previously expected and Trump is about to take office in January next year, traders have reduced their bets on the number of interest rate cuts by the Federal Reserve next year. As shown in the figure below, the interest rate market currently expects the Federal Reserve to only cut interest rates by a total of 70 basis points before the end of next year, which means that a total of three 25 basis point rate cuts may not be achievable.
Deutsche Bank economists even predicted this week that the Federal Reserve will pause its easing cycle next year after cutting interest rates by 25 basis points in December this year.
The team of Deutsche Bank economists led by Matthew Luzzetti has raised their forecasts for next year's economic growth and inflation in the latest forecast, and lowered their unemployment rate forecast, stating that a comprehensive Republican victory could bring "earth shattering changes" to the US economy. The bank's economists expect the Federal Reserve to avoid further rate cuts next year after cutting interest rates in December, and will not cut interest rates again by 25 basis points until the third quarter of 2026. They also expect the nominal neutral interest rate to eventually fall between 3.75% and 4%.
However, it is worth mentioning that compared to the highly pessimistic outlook of market participants on interest rate cuts, the recent statements of Federal Reserve officials seem to be less hawkish.
On Thursday, Chicago Fed Chairman Goolsby, a member of the 2025 FOMC voting committee, stated that he believes interest rates will "significantly decrease" and expressed confidence that inflation is approaching the Fed's target and the labor market is stable.
Gulsby gave a speech at the Central Indiana Business Cooperation on the same day. He did not specify whether he supported continuing interest rate cuts next month, but put forward a viewpoint that most officials support: the current level of interest rates has not yet reached the ideal state. Gulsby stated that inflation levels have decreased over the past year and a half, and are moving towards the Federal Reserve's 2% target. The labor market has cooled down, and the economy is approaching a stable state of full employment. Therefore, one year from now, the interest rate should be significantly lower than the current level.
Of course, given the uncertainty and disagreement over how low interest rates should be lowered, Goolsby also mentioned that slowing down the pace of rate cuts may be a wise move as we approach our target.
In addition to Goolsby, the third in command of the Federal Reserve and President of the New York Fed, Williams, also stated in an interview on Thursday that he believes inflation is cooling down and interest rates will further decline. Williams believes that by the end of next year, the federal funds rate will be lower than it is now, depending on the data and the progress we have made.
In addition, Richmond Fed Chairman Barkin also pointed out on Thursday that despite monthly data released by government agencies showing a stagnation in anti inflation progress, he expects inflation rates in the world's largest economy, the United States, to continue to decline.
Barkin stated that he does not want to "pre judge the situation in December", but added that the upcoming interest rate decision will depend on data, and current data indicates that the economy is "quite prosperous". If inflation remains above our target in the future, we need to carefully consider cutting interest rates. If the unemployment rate accelerates its rise, then it is necessary to be more proactive in cutting interest rates.