Treasurys

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%.

US 30-year yields dropped seven basis points to 4.79%, unwinding part of Thursday's surge that was driven by a somewhat disappointing inflation reading and a weak bond auction.

The current Treasury yield curve is leading homeowners to pay mortgage rates at least 120 basis points more than they should, equal to an extra $245 a month on a $300,000 loan, their letter said.

Top Fed officials are coalescing around the idea that tighter financial conditions after a recent surge in U.S. Treasury yields may substitute for additional increases in their benchmark interest rate.

"There is nothing that is saying we need to do anything imminent anytime soon," the Federal Reserve governor said in an interview on CNBC Tuesday.

New mortgage bonds now offer yields that are about 1.66 percentage point higher than U.S. Treasuries, according to data compiled by Bloomberg. That's the most relative to corporate bonds in 17 years. 

Stock futures fluctuated on Wednesday as the latest data showed the U.S. economy expanded at a slower rate than previously thought in the second quarter, fueling speculation the Federal Reserve is nearing the end of its rate-hike cycle.