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Bond Market Insights - Wed, 29 Nov 2023

USTs gained as softish data, dovish Fed comments, and some month-end demand fuelled the bid. The rally intensified when the typically hawkish Waller commented that he is increasingly confident policy is well positioned to get inflation back to target and less concerned about growth/inflation taking off again. In the ensuing Q&A he added policy rates could be lowered as inflation trends back towards target. The front-end led the rally, 2yr yields sliding through the post-CPI lows. 5yr yields traded below 4.30% for the first time since Sept 1st.

The $39bn 7yr auction tailed 2.2bps with non-dealer allotments falling to less than 80%, the lowest since last November, as investors seemed to balk at the yield level. The slippage was temporary as some large futures orders went through the pit taking 5yr yields through 4.29%.

Other FedSpeak was largely ignored. Goolsbee commented that they are making progress on inflation but not there yet; Gov Bowman reiterated her call that further policy tightening could be needed if inflation progress stalls. But with heavy receiving in OIS (overnight index swaps) there is now a 70% chance of a cut by May.

In UK BoE’s Haskell weighed in that there is no scope for moderation on interest rates in the near future as the UK labour market is still tight. Rates need to be held higher for longer.


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