US long-dated yields dip as investors consolidate positions ahead of long weekend

NEW YORK – US Treasury yields fell on the long end of the curve on Friday as investors, ahead of a long weekend, paused selling government debt and consolidated positions to book profits after Republican Donald Trump’s victory in Tuesday’s presidential election.

The bond market is closed on Monday for Veterans Day.

The benchmark US 10-year yield posted its largest weekly drop since early September. It was last down 2.7 basis points (bps) at 4.316%.

US 30-year yields were down 5.7 bps at 4.486%. On the week, it slid 5.8 bps, its biggest weekly fall since early September as well.

Going into the election, bond investors sold Treasuries, pushing their yields to multi-month highs, as they priced in a Trump victory. His re-emergence suggests more government borrowings due to expected higher fiscal deficits under his administration with lower taxes and higher tariffs.

“It’s definitely very much like the classic ‘buy the rumor, sell the fact’ event,” said Brendan Murphy, head of fixed income, North America, at Insight Investment in Boston, which oversees USD 838.1 billion in assets.

“The market has done a very good job of anticipating the outcome and pricing them in. And then you get position-squaring in the aftermath of it, causing a near-term reversal,” Murphy added.

Treasury yields also fell after the cooler-than-expected one-year inflation print, as indicated in the University of Michigan’s consumer sentiment report for November, analysts said. Year-ahead inflation expectations of 2.6% in November ticked down from October’s reading of 2.7% and were the lowest since December 2020.

The Michigan inflation print has gained more attention from the Fed, with Chair Jerome Powell mentioning it in one of his press conferences.

The Consumer Sentiment Index, however, climbed to 73.0 this month, the highest since April, from 70.5 in October. The result exceeded the median estimate among economists polled by Reuters for a reading of 71.0. I

The Fed on Thursday gave markets a chance to take some profits, when it lowered its fed funds target rate to 4.50%-4.75%, as expected. With inflation coming down and signs of labor market loosening, the central bank eased by an aggressive 50 basis points in September after holding rates at 5.25-5.50% since July 2023.

The US rate futures market has priced in an 85% chance of a another 25-bp easing at next month’s policy meeting, and a 15% probability of a pause in cuts, according to LSEG calculations. For next year, rate futures have implied just two rate reductions of 25 bps each.

Policymakers are preparing for what could be a more complex economic picture after Trump takes office in January.

Kim Rupert, managing director of fixed income at Action Economics in San Francisco, said Treasuries were digesting recent movements and trying to find a course from here.

“The Trump trade has been a big factor,” Rupert said. “The Fed really didn’t tell us much yesterday (Thursday). It wasn’t expected to. So now we’re going to have to hang around these levels to try to figure out the path ahead, but that’s going to require more data.”

Next week, markets will be watching for the October Consumer Price Index report on Wednesday, followed by producer prices on Thursday.

In other maturities, the two-year yield, which typically tracks interest rate expectations, rose 3.8 bps to 4.258%.

The yield curve, meanwhile, flattened on Friday, with the gap between two-year and 10-year yields hitting 4.2 bps late Friday, the lowest in a month. It was at 19.5 bps on Nov. 6, a day after the election.

Investors have been putting on trades that steepen the yield curve, a popular bet when the Fed is in the midst of an easing cycle. Friday’s sharp decline in the curve suggested a bit of position-squaring as well in line with other parts of the bond market.

(Reporting by Alden Bentley and Gertrude Chavez-Dreyfuss; Editing by Frances Kerry and Will Dunham)