Treasurys

Potentially limiting the Federal Reserve's ability to cut rates is the growing view that the economy's so-called neutral rate — a theoretical level of borrowing costs that neither stimulates nor slows growth — is much higher than policymakers are currently projecting. 

Wall Street saw another busy session of bond sales as issuers looked to borrow before key economic data later this week.

In the derivatives markets, they've started pricing in that the Fed will carry out just four — or five at the most — quarter-point rate cuts in 2024, only slightly more than the three penciled in by policymakers.

Bond traders are growing more convinced that US yields are heading lower as they bet on a series of Federal Reserve interest-rate cuts, yet the path to cheaper borrowing costs is set to be extremely bumpy.

The Federal Reserve will need to start hitting the brakes on the unwind of its balance sheet as the outlook for the central bank's reserves grows increasingly murky, according to Wrightson ICAP.  

The rally in Treasuries ahead of the Federal Reserve's first interest-rate cut may only just be getting started, according to Bank of America Corp. research.

Treasuries resumed their rally on Tuesday as further labor-market slowdown reinforced speculation the Federal Reserve will be able to cut interest rates next year to prevent a recession.

Whether the rally extends into December and then 2024 depends on if the principal forces behind it — signs that the economy and inflation are slowing and that the Federal Reserve is done hiking interest rates — keep building.

By the end of 2024 traders now see the U.S. central bank slashing rates by a full percentage point, despite officials repeatedly warning markets that they're in no rush to cut rates.

The recent jump is the biggest increase since the run up in the early 1980s, when Paul Volcker's efforts to slay inflation pushed the 10-year yield to nearly 16%.