[New York Bond Market]US Treasuries Rise for Second Day as Fed's No. 3 Signals December Rate Cut Hopes Surge

(Seoul=Yonhap Infomax) Sung Jin Kim = US Treasury prices climbed for a second consecutive session, with gains most pronounced in the short- and intermediate-term maturities.

Expectations for a Federal Reserve rate cut in December surged sharply after comments from John Williams, President of the Federal Reserve Bank of New York and widely regarded as the Fed's third most influential official. The probability of a rate cut next month, as reflected in the futures market, soared to nearly 70%, decisively overtaking the likelihood of a hold.

According to Yonhap Infomax's overseas rates intraday screen (screen number 6532), as of 15:00 US Eastern Time on the 21st, the yield on the 10-year US Treasury note stood at 4.0630%, down 4.20 basis points from the previous day's 15:00 level.

The yield on the policy-sensitive 2-year note fell 4.40 basis points to 3.5140% over the same period.

The 30-year Treasury yield, the longest maturity, declined 1.60 basis points to 4.7150%.

The spread between the 10-year and 2-year yields widened slightly from 54.70 basis points to 54.90 basis points.

Bond yields and prices move inversely.

Williams, speaking at the Central Bank of Chile's centennial conference earlier in the day, stated, "I still see it as appropriate to make further adjustments to the target range for the federal funds rate in the near term to move policy closer to neutral."

He added, "Looking ahead, it is essential to return inflation to our 2% long-term target on a sustained basis," but also emphasized, "It is equally important to achieve this without creating excessive risks to our full employment objective."

As the New York Fed President, Williams serves as the ex officio Vice Chair of the Federal Open Market Committee (FOMC) and holds a permanent voting seat. The New York Fed, responsible for the Fed's open market operations, is the most pivotal among the 12 regional Reserve Banks.

Williams' remarks triggered a particularly sharp reaction in the 2-year yield, which at one point dropped to 3.4910%, its lowest since October 28.

Krishna Guha, economist at Evercore ISI, wrote in a note, "Williams' intervention signals at minimum that the Fed leadership has not abandoned the idea of rate cuts," adding, "It is reasonable to interpret this as potentially more significant, though not certain."

Thomas Graff, Chief Investment Officer at Facet, commented, "Clearly, everyone is watching for a December Fed rate cut," and Williams' comments "made people think there is additional support for a cut."

However, other regional Fed presidents continued to voice opposition to a rate cut next month.

Boston Fed President Susan Collins, in an interview, cited inflation concerns and said holding rates steady is "appropriate for now." Dallas Fed President Lorie Logan also reiterated her opposition to a December rate cut.

Steven Myron, a former economic adviser to President Donald Trump, indicated he would support a 25 basis point cut if his vote proved decisive at the December FOMC, potentially tipping the balance in favor of a cut.

In an interview with a foreign media outlet, he said, "If my vote becomes the marginal vote, I would definitely support a 25bp cut." Myron had previously dissented at the September and October FOMC meetings, advocating for a 'big cut' of 50 basis points.

The final November University of Michigan consumer sentiment index was revised up 0.7 points from the preliminary reading to 51.0, but fell 2.6 points from the previous month's final figure, marking the lowest level since June 2022 (50.0).

Joanne Hsu, director of consumer surveys at the University of Michigan, noted, "There was a slight improvement from the mid-month reading (preliminary) after the end of the federal government shutdown," but added, "Consumers remain dissatisfied with persistently high prices and weakening incomes."

The US Treasury Department will hold auctions for 2-year, 5-year, and 7-year notes for three consecutive days starting Monday, the 24th. Due to the Thanksgiving holiday (27th), the auctions will begin a day earlier than usual.

According to CME FedWatch, as of 15:41 New York time, the federal funds rate futures market priced in a 69.5% probability of a 25bp Fed rate cut in December, surging from 39.1% the previous session.

The probability of a rate hold plunged from 60.9% to 30.5%.

sjkim@yna.co.kr

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Note: US Treasury market quotes in this article are based on 15:00 local time and may differ from closing prices. For official New York bond closing prices, refer to the '[US Treasury Yield Electronic Closing Prices]' article released at 07:30 AM.