(Bloomberg) — Treasuries closed out their worst week in eight months as conflicting economic data challenged expectations for how much the Federal Reserve might cut interest rates next year.
US 10- and 30-year yields rose four basis points on Friday to finish a week in which they spiked the most since April, when havoc erupted in global financial markets after the US administration rolled out its tariffs agenda.
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While traders widely expect the Fed to cut interest rates next week, jitters have emerged over expectations for additional cuts next year amid mixed signals on the health of the US labor market.
“Expectations have been adjusted in a more hawkish direction for the Fed,” said Steven Zeng, an interest-rate strategist at Deutsche Bank. “Investors are growing skeptical of more rate cuts next year.”
A much bigger selloff in Canadian government bonds Friday, sparked by stronger-than-expected employment data, was a factor. But US yields had already risen to weekly highs.
The US 10- and 30-year yields climbed more than 12 basis points since Nov. 28, with the 10-year closing at 4.14%.
The move held after the delayed release of September personal income and spending data — which includes the inflation gauge the Fed aims to keep around 2% — showed that it accelerated to 2.8%, as economists estimated. Several Fed policymakers have said the inflation trend should forestall rate cuts.
US administration comments this week about the potential for changes in Fed leadership — beyond its plans for a successor to Chair Jerome Powell, whose term ends in May — “have reinvigorated uncertainty, which is reflected in the price action,” said Dhiraj Narula, an interest-rate strategist at HSBC Securities. Treasury Secretary Scott Bessent this week said long-term residency in the district should be an eligibility requirement for regional bank presidents.
The market for long-maturity interest rates in particular “doesn’t like uncertainty around what the potential path for policy might be,” Narula said. “When policy uncertainty goes up, investors need larger premiums to sit in longer tenors.”
Treasuries sustained losses despite heavy buying of five- and 10-year note futures contracts via at least eight block trades. Five were either 20,000 or 25,000 lots, and the largest was a 45,000 parcel.
