Treasury bonds

Treasury yields fell sharply and the dollar weakened as investors pared bets on Republican Donald Trump prevailing in Tuesday's U.S. election.

Wall Street are paring back bets on aggressive policy easing as the U.S. economy remains robust and Fed officials have sounded a cautious tone over the pace of future rate decreases.

Treasuries rallied the most in two weeks as tumbling oil prices eased concerns about an uptick in inflation.

After persisting for as long as two years in the U.S., the so-called inversion in yield curves — an unusual situation where rates on short-term debt exceed those of their longer-term counterparts — is unwinding in many parts of the world. 

Wall Street strategists are recommending taking advantage of declines in market-based gauges of future inflation to build up protection on the cheap.

As Treasuries advance for a third-straight month, investors are fully pricing in at least two quarter-point rate reductions this year, slightly more than what policymakers have telegraphed.

Both Vanguard Group Inc. and Fidelity International have said a Republican sweep in November would pose the greatest risk to bonds by expanding Trump's ability to implement his agenda, some of which is also expected to contribute to higher inflation.

Investors are set to start the week scrambling to decide if President Joe Biden's decision to end his reelection campaign and endorse Vice President Kamala Harris increases or decreases Donald Trump's chances of regaining power. 

The resilience of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening.

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. 

The surprisingly strong U.S. economy has driven Treasury yields to the highest since late November as investors dial back bets on interest-rate cuts, wagering that policymakers will be wary of easing policy prematurely.

Bond investors who were once convinced that the Federal Reserve would start cutting interest rates this week are painfully surrendering to a higher-for-longer reality and a murky path forward for the market.

Market participants have been so focused on determining when and how much the Federal Reserve will slow its balance-sheet unwind that they haven't even started to consider another wrinkle: the composition of the U.S. central bank's assets.

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 benchmark 10-year yield rose as much as nine basis points to 3.97%.

The year-end yield on the bond, a global anchor for markets and U.S. mortgage rates, is the culmination of a stunning rebound for Treasuries.

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.