The US Treasury market extended its decline after Friday’s strong employment report strengthened expectations that the Federal Reserve will pause its interest-rate cuts for most of this year. On Monday, yields on the 10-year benchmark US debt rose to as high as 4.8%, the highest since late 2023, and pushed the 30-year yield towards 5% after breaching that level last seen over a year ago.
The surge in yields is attributed to concerns about persistent inflation and increasing government debt, leading investors to bet against further monetary policy easing until 2025 at the earliest. The recent increase in oil prices also adds to fears that inflation may rise further. “We’re seeing a resilient labor market, which makes it likely that the 10-year yield will join the 5% club soon,” said Kevin Flanagan, head of fixed-income strategy at WisdomTree.
The US economy continued to show strength with non-farm payrolls increasing by 256,000 in December, the most since March. This has led swaps traders to predict only one quarter-point rate cut from the Fed this year, down from two previously expected. Wall Street economists have also revised their forecasts for additional rate cuts, with many now predicting none at all.
The shift in expectations has rippled through global markets, with the dollar surging to a two-year high and European bonds under pressure. Economists are now questioning whether the Fed needs to cut interest rates at all this year, given the strength of the US economy and firm yields. “Inflation is really that key data point this week,” said Laura Cooper, global investment strategist at Nuveen. “The risk is that it shifts to rate hikes.”
Source: https://finance.yahoo.com/news/treasuries-selloff-ripples-world-markets-104622891.html