Treasuries resumed their rally on Tuesday, fueling speculation that the Federal Reserve will be able to cut interest rates next year to avoid a recession.
Benchmark 10-year yields fell below 4.2% on Tuesday, after data showed job openings fell to their lowest level since 2021. However, concerns about markets being too quick to anticipate Fed easing have surfaced, emphasising the risks for traders anticipating a pivot. It's a wager that could pay off handsomely if rate cuts occur, or it could backfire if policymakers choose to keep borrowing costs higher for longer.
The Job Openings and Labour Turnover Survey, or JOLTS, trailed all estimates in a survey of economists in a week dominated by labor-market readings. The report came just a few days before the key payrolls report, which is expected to show employers added 187,000 jobs in November.
Treasuries joined a global bond rally after one of the European Central Bank's most hawkish officials said inflation is slowing in a "remarkable" way. The S&P 500 remained relatively unchanged. Banks fell following KeyCorp's outlook for non-interest income. Apple and Nvidia both gained at least 2.1% in the megacap space. Bitcoin has surpassed $43,000.
Swap contracts predicting the outcome of Fed meetings have slightly increased the amount of easing they expect by the end of 2024, with the effective fed funds rate expected to fall to around 4.05% from 5.33% currently. The contracts also assume a 60% chance of a March rate cut.