US Treasury yields have surged to a seven-month high, surpassing the 50-year mark, as central bankers slash benchmark interest rates in September. The recent rate cuts have led to a counterintuitive response, with investors betting on higher long-term yields and a more hawkish Fed.
The Fed’s easing cycle has been unique, despite elevated borrowing costs, which have kept inflation stubbornly above the target. Traders are now facing another year of disappointment, with Treasuries barely breaking even. However, a popular strategy called curve steepening has gained renewed momentum, betting that short-term Treasuries will outperform their longer-term counterparts.
Bond investors face challenges, including a Fed likely to stay put for some time and potential turbulence from President-elect Donald Trump’s policies. Strategists expect the Fed to enter a “pause phase,” which could lead to more volatile financial markets in 2025.
The steepener strategy is driven by the perception that bonds are undervalued compared to stocks, offering insurance against an economic slowdown. However, longer-term bonds are struggling to attract buyers amid sticky inflation and concerns about Trump’s policy platform. As a result, investors are flocking to shorter-term debt, which is expected to benefit from higher long-term yields.
Key data points to watch include the University of Michigan consumer confidence survey on Dec 20 and the Chicago Fed National Activity Index on Dec 23. The Treasury is set to auction $183 billion of securities in the days ahead, providing further insight into market sentiment.
Source: https://finance.yahoo.com/news/bond-traders-turn-2025-amid-165341965.html