(Bloomberg) — The U.S. bond market, already suffering its worst decline in six months, is entering a crucial two-week period that will determine its direction for the rest of the year.
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The market-moving series of events occurred in quick succession, starting with Wednesday’s announcement by the Treasury Department on the size of upcoming bond sales and Friday’s monthly payrolls data indicating whether the economy has cooled enough to justify higher interest rates. There is. cut.
More big events will follow next week. The presidential election will be held on November 5th, and two days later the Federal Reserve will meet for the first time since monetary easing began in September.
“The risks for the next few weeks are actually increasing,” said Alex Chaloff, chief investment officer at Bernstein Private Wealth Management.
U.S. Treasury prices have fallen sharply over the past month as the economy continues to perform well, raising questions about how far the Fed will cut interest rates in coming months. Some investors have speculated that his victory would push yields higher on expectations that Donald Trump’s tax cuts and tariffs will continue to fuel inflationary pressures and push interest rates higher, with the presidential election adding to the uncertainty. It’s increasing.
The Fed began easing rates by 0.5 percentage points last month, but traders at one point warned they would continue cutting rates rapidly after data suggested the economy was expanding at a relatively fast pace. I threw away my widespread expectations. As a result, yields soared, raising borrowing costs across the market and sending U.S. Treasuries on track to post their first monthly deficit since April.
“It’s been a very significant cycle so far. A lot can happen over the next two weeks,” said Sinead Colton-Grant, chief investment officer at BNY Wealth.
A flurry of important news raises the risk that the selloff will gain momentum in the coming weeks, especially as investors brace for the fallout from the U.S. presidential election. One sign of that is that traders are paying the highest premiums this year for options that seek to protect portfolios from surging yields.
However, some upcoming events may help the bond market. The Treasury is expected to announce that it will avoid supply pressures and keep the size of bond auctions constant next quarter, but traders will also be paying close attention to any signals about the future trajectory. .
story continues
The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditure Price Index, is expected to show some easing in price pressures, and the Labor Department is expected to report a decline in job openings.
The department is scheduled to report Friday that U.S. employers added 254,000 to 110,000 workers in October, according to a Bloomberg survey of economists, a number that is higher than the recent hurricanes and Boeing Co. may have been distorted due to the impact of the strike.
“Up to about 180,000 is just a magic number,” Bernstein’s Chaloff said, adding that anything below that would be weak enough to support further Fed easing. A stronger version would force central banks to “think long and hard about what to do next.”
Other economic flashpoints over the next two weeks include continued corporate earnings releases and a meeting of China’s most powerful policymakers in Beijing, another boost to the world’s second-largest economy. This could upset a market keen on new initiatives.
Bloomberg strategist says…
Whether you want to focus on the macro or the micro, you’ll want to grab a seat next week. With five of the Magnificent Seven reporting earnings Tuesday through Thursday, and Eli Lilly also reporting, six of the S&P’s top 10 companies report market-moving news. It will be. Add in the PCE data and of course next Friday’s payroll data and you have a pretty potent cocktail of potential volatility.
— Cameron Chris, Bloomberg MLIV Macro Strategist. Click here for details.
But when it comes to the U.S. economy, there will be little guidance for policymakers from the Fed itself during its traditional blackout period on public comments ahead of next week’s meeting. Swap trades are pricing in a more than 80% chance that the Fed will cut interest rates by a quarter of a percentage point on November 7th. However, it also suggests that rate cuts are likely to remain unchanged at one of the next two meetings.
But the Fed’s decision could be overshadowed by the campaign between Vice President Kamala Harris and President Trump, especially if there is uncertainty about the outcome. For bond markets, much of the speculation has focused on the risks posed by Trump’s victory, with his tax cuts and tariff plans likely to widen the budget deficit and push yields higher by increasing import costs. .
“There appears to be a correlation between the 10-year Treasury yield and President Trump’s path to victory,” said George Catrambone, head of Americas fixed income at DWS Group. That “seems to equate to a higher yield.”
what to see
Economic data:
October 28: Dallas Fed Manufacturing Activities
October 29: Wholesale and retail inventory. Advance goods trade balance. FHFA Home Price Index. JOLTS Jobs; Conference Board Consumer Confidence. Dallas Fed Service Activities
October 30: MBA home loan application. ADP employment. GDP annualized quarter-over-quarter (3rd quarter advance) GDP price index. pending home sales
October 31st: Challenger personnel reductions. First unemployment insurance claim. Employment cost index. Personal income and expenses. Personal consumption expenditure price index. MNI Chicago PMI
November 1: October non-farm payrolls, unemployment rate, and average hourly wage. S&P Global US Manufacturing PMI. construction expenditures. ISM manufacturing. Total number of vehicles sold in the ward
Fed Calendar:
Auction calendar:
October 28: Bills for 13 and 26 weeks. 2 years worth of banknotes. 5 year memo
October 29: Bill for 52 weeks. 2 year floating rate bond. 7 years worth of notes
October 30: U.S. Treasury quarterly repayment announcement. 17 weeks of invoices
October 31st: 4-week, 8-week invoices
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