Waller and Bessent help peg Treasury yields

A look at the day ahead in the US and global markets by Mike Dolan

Salvos from a Federal Reserve governor and new Treasury secretary helped halt this week’s inflation-driven slide in U.S. Treasury yields ahead of Donald Trump’s inauguration as president on Monday .

The reversal of rising U.S. yields and the dollar, coupled with news of an upbeat end to last year for the Chinese economy, pushed global stocks higher on Friday.

Yields on two-year Treasury notes fell to their lowest level since Jan. 2 — 20 basis points from Monday’s highs — after Fed Governor Christopher Waller on Thursday raised the possibility of three or four interest rate reductions this year.

Much like a similar forecast from Bank of England policy chief Alan Taylor the day before, Waller’s unusually dovish stance suggested twice as much easing this year as is currently priced into futures markets.

With the Fed governor hailing the week’s surprisingly low inflation report and saying a resumption of rate cuts in March could not be ruled out, federal funds futures rose are brought closer to the assessment of two rate cuts in 2025 – after doubting a possible reduction as recently as possible. last week.

The Treasury rally saw two-year yields fall below 4.45% and 10-year yields fell back below 4.60%. The dollar index held up, partly because the yen weakened despite new reports that the Bank of Japan would raise key rates next week.

Even as a slowdown in the technology sector saw Wall Street stock indexes retreat on Thursday – following the previous session’s best day of the year so far, amid a boom in earnings-linked bank stocks – futures contracts futures were up again before the bell on Friday and a triple-weekend due to the Martin Luther King holiday on Monday.

BESSENT HEARING

Next week’s inauguration and Trump’s first policy moves are now in focus and the Treasury market remains key.

To that end, the confirmation hearing for Trump’s Treasury Secretary pick, Scott Bessent, on Thursday was an important marker for the debt market and the dollar.

Bessent highlighted plans to roll over Trump’s 2017 tax cuts — calling it an economic “calamity” if they don’t happen, despite concern from some congressional Republicans. But he also wholeheartedly supported the dollar’s dominant role globally, supported the independence of the Fed and insisted that no default would ever be considered.

Earlier in the day, the latest health checks on the U.S. economy showed that retail spending remained strong, weekly jobless claims rose and business confidence, revealed by the Fed’s survey of Philadelphia, had surged this month. Industry and housing starts figures for December will be released later Friday.

The story continues