On October 25, U.S. Treasury bonds faced renewed selling pressure, prompting a rebound in yields. As a result, the benchmark 10-year Treasury yield marked its sixth consecutive weekly increase, with an overall rise of 58.3 basis points over the past six weeks—the largest jump in a year. Analysts are cautioning investors to remain vigilant as the November 5 U.S. presidential election approaches, leading to heightened uncertainty in the bond market.
Across both short-term and long-term maturities, Treasury yields have seen a comprehensive rise. Data from the Dow Jones Market indicates that the yield on the 2-year Treasury climbed 3.1 basis points to 4.096%, reaching its highest closing level since August 15. It surged by 14.5 basis points over the past week, and over the last four weeks, it has increased by 53.4 basis points. It’s important to note that bond yields and prices move inversely.
The yield on the 10-year U.S. Treasury also rose 3.1 basis points to 4.232%, with a weekly increase of 15.8 basis points, extending its upward trajectory for six weeks in a row. Meanwhile, the yield for the 30-year Treasury increased by 3.3 basis points, ending the week at 4.5%, contributing to a total weekly ascent of 11.8 basis points.
Market participants are closely watching the Federal Reserve’s outlook on future monetary policy, especially following recent remarks indicating a more conservative stance on further rate cuts. Cleveland Federal Reserve President Beth Hammack stated, “We wouldn’t say we’ve accomplished our mission on inflation yet.” Other officials echoed this sentiment, emphasizing the need for a thoughtful, cautious, and patient approach toward any potential rate adjustments.
According to the CME FedWatch tool, the futures market shows that traders currently believe there’s a 95.1% chance of a 25-basis-point rate cut in November, while the likelihood of holding rates steady stands at 4.9%, with a negligible chance of a 50-basis-point cut. The current target range for the federal funds rate is 4.75% to 5.0%.
The latest data released on Friday revealed that the University of Michigan’s consumer confidence index rose to 70.5, the highest in six months. However, orders for durable goods declined by 0.8% for the second consecutive month, although this drop was less than the 1% decrease anticipated by economists.
Since mid-September, U.S. Treasury yields have generally been on the rise. Analysts suggest that while the economy’s strength decreases the likelihood of significant Fed rate cuts, the momentum is also influenced by election betting markets and polls showing an increased chance of Republican candidate Donald Trump winning the presidency. Investors are concerned that if Republicans achieve significant victories in both the White House and Congress, it could facilitate Trump’s promised tax cuts and tariffs, potentially exacerbating the federal deficit and reigniting inflation—factors that could negatively impact future Treasury markets.
LPL Financial’s chief technical strategist, Technical Strategist Ternquist, remarked, “The market is readjusting its expectations to align more closely with the Fed’s forecasts, which is a factor behind the yield rebound. However, it’s not the only reason. Concerns about the expanding U.S. deficit are growing, and uncertainty over who will win the White House next month may also be contributing to rising yields.”
Market experts are advising investors to navigate the current uncertain period carefully. The economic outlook remains unclear, especially as hurricanes could distort the October employment data set for release next month. Additionally, the unpredictability of election outcomes raises the risk of increased market volatility and more dramatic price movements following the November 5 election.
Fund managers Kelly and Strauss from Advisors Capital have advised clients to avoid chasing high yields by extending duration or holding lower-quality corporate bonds, which could lead to increased credit risk. They stated, “Historically, the potential for credit spreads to significantly tighten from current levels is low, and if either party wins resoundingly in the upcoming election, we might see long-term yields surge. Therefore, this is simply not the time to chase yields.”
Some investors believe that U.S. Treasury yields may have peaked, anticipating that the Fed and other central banks will continue on a path of rate cuts. Morgan Stanley’s Chief Investment Officer, Calon, indicated that due to ongoing easing in inflation and expectations for further Fed rate cuts, “the rise in bond yields is likely to be limited; this should not be seen as the beginning of a trend toward higher yields but rather a correction.”
Over the past 18 months, the bond market has repeatedly adjusted its expectations regarding Fed rate cuts—initially anticipating significant reductions that led to sharp increases in bond prices, followed by corrections as the market reassesses its outlook, creating a cycle of fluctuations.
Columbia Threadneedle’s Senior Global Rates Strategist, Ahsaini, argued that the pendulum in the bond market has swung to the other side, shifting from an “overestimate” of Fed cuts to an “underestimate.” He stated, “I believe the market is currently too optimistic about economic growth and overly sensitive to the expanding fiscal deficit, thus undervaluing the extent to which the Fed may need to cut rates in the future. I am betting on that.”
