“People know next week is going to probably be a volume and liquidity vacuum,” but “you can visualize the market trying to make room for it,” William O’Donnell, rates desk strategist at Citigroup Inc., said about the auction.
“I don’t think supply is going to be the acute problem the market may fear now,” he said. “We could have moments in time when it feels like there’s not enough supply.” That was the case on Tuesday, when the five-year Treasury yield fell as much as 25 basis points in the rally sparked by October consumer price readings.
Key US economic indicators in the coming week include October durable goods orders. Globally, purchasing managers indexes for the UK and euro-zone are due out.
Concerns persist, to be sure. This week’s declines in yields owed something to the latest collapse in oil prices, and the Treasury rally ran out of steam on Friday as oil rebounded from the lowest levels since July.
Also, traders may have gotten ahead of themselves by continuing to anticipate that the Fed will pivot to lowering interest rates by June and deliver a total of four quarter-point cuts by December 2024. Fed officials themselves in September anticipated no more than one cut based on their median forecast.
“The risk is that yields move higher as the market prices the easing out, as we have seen before, particularly if the Fed has a bit more cautious rhetoric at the December meeting,” said Leslie Falconio, head of taxable fixed income strategy at UBS Global Wealth Management.
This article was provided by Bloomberg News.