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(Seoul=Yonhap Infomax) Sung Jin Kim – The New York bond market is expected to focus this week (Nov. 24–28) on whether the US Federal Reserve’s monetary policy stance will tilt decisively toward a rate cut at its December meeting.
From Saturday, Nov. 29, senior Fed officials will enter the so-called “blackout period,” refraining from public comments on monetary policy. If the Fed intends to send any final signals before the Dec. 9–10 Federal Open Market Committee (FOMC), this week marks the last opportunity.
Due to the recent US government shutdown, the October employment report and Consumer Price Index (CPI) releases were canceled, and the November employment and CPI data will only be published after the December FOMC. With no major economic indicators to influence the FOMC decision, the market pricing established later this week could persist through the meeting.
The New York bond market will be closed on Nov. 27 for Thanksgiving, with an early close at 14:00 on the following day. With trading shortened by 1.5 days, reduced volumes could lead to heightened volatility.
Bond Market Trends Last Week
According to Yonhap Infomax overseas rates data (screen no. 6533), as of Nov. 21 (local time), the 10-year US Treasury yield fell 8.50 basis points from the previous week to 4.0650%, marking its first decline in four weeks.
The 2-year yield, which is sensitive to Fed policy, dropped 10.00bp to 3.5100%, reversing direction after a week. The 30-year yield, the longest maturity, fell 3.70bp to 4.7130%, ending a three-week upward streak.
With short- and medium-term yields falling more sharply than long-term yields, the spread between the 10-year and 2-year yields widened by 1.50bp to 55.50bp, indicating a bull steepening.
The delayed September employment report showed mixed results. Nonfarm payrolls rose by 119,000, far exceeding the market consensus of 50,000, but the unemployment rate unexpectedly climbed 0.1 percentage point to 4.4%, drawing more market attention.
The FOMC minutes released midweek revealed a numerical majority favoring a rate hold in December. However, late in the week, comments from John Williams, President of the Federal Reserve Bank of New York, dramatically revived expectations for a December rate cut.
According to CME FedWatch, the probability of a 25bp rate cut in December, as reflected in federal funds futures, edged above 70%. This probability had previously dipped into the 30% range but rebounded sharply following the September unemployment data and Williams’ remarks.
Outlook for This Week
The US Treasury will hold three consecutive days of coupon-bearing Treasury auctions starting Monday, Nov. 24, a day earlier than usual due to the Thanksgiving holiday.
The auctions will include $69 billion in 2-year notes, $70 billion in 5-year notes, and $44 billion in 7-year notes. On Nov. 25, $28 billion in 2-year floating-rate notes (FRNs) will also be auctioned.
No speeches by senior Fed officials are scheduled this Thanksgiving week. In the absence of new remarks from key figures, Williams’ Nov. 21 comments—he is widely seen as the Fed’s de facto third-in-command—may serve as the “final signal.”
At the Bank of Chile’s centennial conference, Williams stated, “I still see the possibility of further adjusting the target range for the federal funds rate in the near term to move policy closer to neutral.”
The FOMC has historically made decisions in line with market consensus formed just before the blackout period. If the 25bp cut remains the dominant expectation at week’s end, the December FOMC is likely to follow suit.
However, it is worth recalling that, in rare cases, such as the “big cut” (50bp) in September last year, Nick Timiraos of The Wall Street Journal—often dubbed the Fed’s unofficial mouthpiece—shifted market sentiment during the blackout period (see the article published Sept. 13 last year on the “big cut” revived by Timiraos’ reporting, similar to the “75bp hike” episode).
This week’s US economic data will be concentrated on Nov. 25, including the ADP weekly private employment estimate (4-week moving average), September retail sales and Producer Price Index (PPI), the Conference Board’s November Consumer Confidence Index, October pending home sales, and the September Case-Shiller Home Price Index.
September retail sales and PPI were delayed due to the shutdown. Additional indicators include September durable goods orders (Nov. 26) and the November Chicago Purchasing Managers’ Index (PMI, Nov. 28).
The Fed’s Beige Book, its regional economic assessment, will be released on Nov. 26. Given that several regional Fed presidents have voiced opposition to a December rate cut, a hawkish tone may be observed.
Outside the US, attention should be paid to the UK’s Autumn Budget (Nov. 26). If concerns over fiscal soundness drive UK gilt yields higher, ripple effects could spread across global bond markets.
sjkim@yna.co.kr
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