US yields advance as risk aversion eases, Fed pause in December likely

NEW YORK – US Treasury yields rose on Friday as risk aversion abated, with Wall Street finding its footing after a selloff in the last few days and investors continuing to pare back expectations for a Federal Reserve rate cut at next month’s policy meeting.

Investors earlier in the session sought less-risky assets while they marked time for the reopened US government to resume publishing economic indicators. But selling in risky assets such as stocks eased in the afternoon ahead of the weekend and before a deluge of economic data next week as the government reopens after the record 43-day shutdown.

In afternoon trading, the yield on the benchmark US 10-year Treasury note was up 3.5 basis points (bps) at 4.146%. Bond yields move inversely to prices.

On the week, 10-year yields advanced 5.5 bps, rising in just two of the last seven weeks.

The turn higher in yields coincided with Fed officials on Friday expressing caution about raising interest rates next month.

Kansas City Fed President Jeffrey Schmid, a voter on the policy-setting Federal Open Market Committee, was the latest central bank official to express doubts about a December rate cut. He said on Friday his concerns about “too hot” inflation go well beyond the narrow effects of tariffs alone.

Dallas Fed President Lorie Logan on Friday echoed the sentiment. She signaled that she would oppose an interest-rate cut in December, after also opposing the Fed’s rate cut in October, because of her concern that inflation is too high.

Several Fed speakers in recent days have also expressed reservations about easing next month, based on worries about inflation and what looks like a more stable labor market. Longer-dated yields were depressed in part by a weak 30-year bond auction on Thursday.

“Many Fed officials have favored waiting for data before making a policy decision on December 10,” wrote Action Economics analysts led by fixed-income strategist Kim Rupert.

“And the shutdown not only delayed releasing the numbers, but in gathering them as well, adding to concerns over the quality of the information.”

Markets now price in about a 40% chance of a December rate cut, down from about 90% earlier this month and just over 60% earlier this week.

Rather than restore some market confidence, the reopening of the government this week has fanned risk-off sentiment, with investors worried that gaps in economic data, once they start being released again, will delay or derail Federal Reserve interest rate cuts.

There is doubt about the publication of October’s inflation data, and the employment report will not include the jobless rate, White House economic advisor Kevin Hassett said, because the household survey from which it is calculated was not conducted.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, rose 2.1 basis points to 3.568%. It was up 5.4 bps on the week, the biggest weekly rise since mid-June.

The yield curve steepened on Friday, as the spread between US two-year and 10-year yields rose to 53.2 bps, from 52.6 bps late Wednesday.

The curve showed a bear-steepening scenario, with long-term yields rising faster than short-term rates. This reflected market concerns about a pickup in inflation and expectations that the Fed could pause its easing cycle. The yield on the 30-year bond also rose, up 4.4 bps at 4.746%.

(Reporting by Alden Bentley and Gertrude Chavez-Dreyfuss in New York; Editing by Philippa Fletcher and Matthew Lewis)