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.

Benchmark 10-year yields that briefly topped 5 per cent in October broke below 4.2 per cent on Tuesday, following data showing job openings hit the lowest since 2021. Yet concerns about markets being too fast in anticipating Fed easing have surfaced — underscoring the risks for traders expecting a pivot. It’s a bet that stands to pay off handsomely if rate cuts materialize — or backfire if policymakers opt to keep borrowing costs higher for longer.

In a week dominated by labor-market readings, the Job Openings and Labor Turnover Survey — known as JOLTS — trailed all estimates in a Bloomberg survey of economists. The data came a few days before the key payrolls report — currently forecast to show employers added 187,000 jobs in November.

“Overall, the jobs update is in the driver’s seat,” said Ian Lyngen at BMO Capital Markets. “Treasuries extended the bullish price action. From here, there isn’t much on the macro horizon until tomorrow’s ADP report.”

Treasuries also joined an advance in global bonds after one of the European Central Bank’s most-hawkish officials said inflation is showing a “remarkable” slowdown. The S&P 500 was little changed. Banks fell after KeyCorp’s non-interest income outlook. The megacap space outperformed — with Apple Inc. and Nvidia Corp. up at least 2.1 per cent. Bitcoin topped US$43,000.

Embedded Image

The Treasury market’s rally is approaching concerning levels, particularly at the back end of the curve, Gennadiy Goldberg at TD Securities told told Bloomberg Surveillance on Friday. Ten-year yields dropped eight basis points to 4.18 per cent on Tuesday.

“We’ve been long since 4.70, and I’m certainly not complaining. But I do think you’re seeing a bit of an overstretch,” Goldberg noted. “If we got closer to 4 per cent, I think I would take my foot off the gas pedal. I think you have to play this tactically.”

A Fed cut is more than likely going to be a response to something bad from an economic perspective, said Peter van Dooijeweert at Man Group.

“If the Fed’s going to be cutting rates next year, it’s likely a result of something not going well in the economy,” he noted.

Swap contracts that anticipate the outcome of Fed meetings slightly increased the degree of easing they foresee by the end of 2024, with the effective fed funds rate expected to fall to about 4.05 per cent from 5.33 per cent currently. The contracts also imply about a 60 per cent chance of a rate cut in March.

To Krishna Guha at Evercore, the jobs-opening data confirm the Fed has made substantial progress in normalizing the labor market — but will be viewed by policymakers as more consistent with “desired rebalancing” than “heightened downside risk.”

“In this context, we are wary about market rate-cut bets piling up too much,” Guha noted. “We find it hard to envisage a cut before June without a recession — and still see a three-cut baseline in a soft-landing scenario.”

Embedded Image

The Fed is now likely at the end of a very aggressive monetary policy hiking cycle, according to Lauren Goodwin at New York Life Investments. But a faster pace of hikes doesn’t necessarily mean that those impacts are felt more quickly. 

“Historically, interest rate hikes have taken roughly 12 to 18 months to impact the economy, and 18 to 24 months to impact the labor market,” she noted. “The market doesn’t begin to price recession risk until unemployment claims rise and earnings deteriorate. We’ll be watching labor market data this week very closely as a result.”

BlackRock Inc. says market optimism over the scope of rate cuts next year may be going too far and recommends stepping back from longer-maturity bonds.

“We see the risk of these hopes being disappointed,” strategists including Wei Li and Alex Brazier wrote. “Higher rates and greater volatility define the new regime.”

Meantime, the cost of buying protection against currency swings is jumping as traders brace for a slew of data and central bank meetings that could shed light on the timing of a possible pivot to rate cuts next year. 

“The shift in central bank policy rate cycles from hikes to cuts is keeping rate volatility elevated and finally putting some bid into currency volatility,” said Erik Nelson, macro strategist at Wells Fargo Securities.

Embedded Image

Corporate Highlights:

  • Michael Dell is taking steps to donate Dell Technologies Inc. shares worth as much as $1.74 billion.
  • Starbucks Corp.’s chief Laxman Narasimhan sais China is normalizing at half the expected pace.
  • JPMorgan Chase & Co. retained 90 per cent of First Republic’s clients after buying the bank in a government-led auction earlier this year.
  • Citizens Financial Group Inc. has held discussions with potential partners to grow its private credit business, according to a person with knowledge of the matter.
  • Elon Musk’s artificial intelligence company xAI is seeking to raise $1 billion in funding from equity investors, according to a new filing.
  • Johnson & Johnson expects operational sales growth between 5 per cent to 6 per cent in 2024 as its top-selling psoriasis drug starts to face generic competition outside the U.S.
  • CVS Health Corp. plans to change how its more than 9,000 pharmacies get paid with a new reimbursement model designed to simplify drug pricing.
  • Robinhood Markets Inc. said November crypto notional trading volumes were about 75 per cent above October levels.
  • Rockstar Games, part of Take-Two Interactive Software Inc. released the first trailer for the newest version of Grand Theft Auto on Monday, giving fans a glimpse of what’s likely to rank as one of the industry’s top-selling titles. The game will be released in 2025.
  • London Stock Exchange Group Plc suffered a third outage in a few months as trading in about 2,000 smaller shares was halted, adding to the bourse operator’s recent woes.

Key events this week:

  • Eurozone retail sales, Wednesday
  • Germany factory orders, Wednesday
  • U.S. ADP private payrolls, trade balance, Wednesday
  • CEOs of the biggest banks on Wall Street, including JPMorgan, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America, expected to testify on regulatory oversight to the Senate banking committee, Wednesday
  • Bank of Canada monetary policy meeting, Wednesday
  • Bank of England issues biannual stability report on UK financial system, holds news conference, Wednesday
  • China trade, forex reserves, Thursday
  • Eurozone GDP, Thursday
  • Germany industrial production, Thursday
  • U.S. wholesale inventories, initial jobless claims, Thursday
  • Germany CPI, Friday
  • Japan household spending, GDP, Friday
  • Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday
  • U.S. jobs report, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:


  • The S&P 500 was little changed as of 4 p.m. New York time
  • The Nasdaq 100 rose 0.2 per cent
  • The Dow Jones Industrial Average fell 0.2 per cent
  • The MSCI World index fell 0.2 per cent


  • The Bloomberg Dollar Spot Index rose 0.2 per cent
  • The euro fell 0.4 per cent to $1.0795
  • The British pound fell 0.3 per cent to $1.2593
  • The Japanese yen was little changed at 147.19 per dollar


  • Bitcoin rose 4.1 per cent to $43,768.51
  • Ether rose 1.3 per cent to $2,264.85


  • The yield on 10-year Treasuries declined eight basis points to 4.18 per cent
  • Germany’s 10-year yield declined 11 basis points to 2.25 per cent
  • Britain’s 10-year yield declined 17 basis points to 4.02 per cent


  • West Texas Intermediate crude fell 0.9 per cent to $72.35 a barrel
  • Spot gold fell 0.5 per cent to $2,019.49 an ounce