BondsRates and credit
Bond Market Prices A December Rate Hike
Treasury yields rose on Nov. 13 as traders added to bets on a December hike, after MarketWatch reported the biggest yield surge since 2022.
Treasury yields rose again on Nov. 13, with CNBC reporting traders strengthening their bets on a December Fed rate hike. MarketWatch said on Nov. 12 that yields had just posted their biggest surge since 2022, and tied the volatility in part to Fed Chair Warsh's quiet style of communicating interest-rate policy. The supplied feeds give no yield levels, so the size of the move cannot be quoted here. The direction and the speed are the news: a market that expected cuts this year is now pricing the opposite.
The reasoning comes from the Fed itself. New York Fed President John Williams said on Nov. 12 that the central bank has 'work to do' to get inflation back to target, and that inflation remains too high. CNBC's Nov. 13 piece notes that inflation has run above the 2% target for more than five years and that the Fed, which expected cuts this year, is now bracing for another inflation fight ahead of its Dec. 8 meeting. A chair who speaks rarely leaves the market to extrapolate from each official's remarks.
The curve is moving unevenly. WSJ reported that the selloff concentrated in longer-dated Treasurys while the two-year yield stabilised, and that the pace of selling had slowed compared with the prior session. A steady two-year yield with a rising long end means the market is not adding to its estimate of near-term hikes so much as demanding more compensation for holding duration. Fiscal supply is part of that: October's budget balance printed at minus 404 against minus 298.6 expected.
The skeptical read is that the surge may overshoot. One session's selloff, even the largest since 2022, is a measure of how crowded the cut trade was, not of how much inflation has changed. The data supplied does mix signals: existing home sales fell 5.5% in October and continuing jobless claims dropped to 1,697 thousand from 1,717. A cooling housing market and a still-tight labour market are what a late-cycle hike debate looks like. Without yield levels, the pricing of a December hike cannot be called either cheap or expensive.
Today's U.S. inflation data is the event. A hot print would validate the hike bets and extend the long-end selloff, which WSJ says is already weighing on futures. A cool one would test how much of the move was positioning. After that, the Fed's Dec. 8 meeting is the next hard date. Foreign data adds pressure, with French inflation at 3.7% and Japanese core inflation seen above the BOJ target for a second month. Global central banks are facing the same inflation problem at once.
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Housing Cools As Yields Climb
U.S. existing home sales fell to 3.75 million annualised in October against 3.85 million expected and 3.97 million in September. The monthly change was minus 5.5% against an expected plus 0.3%, a miss large enough that it can be read as a decline in demand rather than noise. A sales rate this far below the prior reading and the forecast is what a mortgage market under rate pressure looks like.
The picture is not uniform. Redfin said monthly mortgage payments fell to their lowest level in six weeks as home prices kept dipping, and another Nov. 12 report found just three major U.S. metros qualify as seller's markets, the fewest since the pandemic freeze. Rocket Companies, a $38.7B mortgage lender with a Hold rating, has a payment-sensitive business, and yields rising again undo some of that relief. Sales falling while prices drift lower is a market clearing slowly.
French Inflation Reaches 3.7%
French inflation rose to 3.7% in October, the highest since December 2023, Reuters reported on Nov. 13. The figure matters outside France because euro-area policy is set for the whole bloc and a large member running at 3.7% narrows the room for easing. No component breakdown was supplied, so energy, food and services cannot be separated here.
The reading collides with Goldman's Nov. 13 decision to raise its 12-month target for European stocks on energy price relief. Both can hold if energy is easing at the margin while other prices are still rising, but that is a narrow path. French bond yields and the euro are the places to look for the market's verdict; neither was in the data supplied. A 3.7% print also complicates any assumption that Europe will follow lower than the United States.
Japan: Inflation, Yen And The BOJ
A Reuters poll sees Japanese core inflation above the Bank of Japan's target for a second month in October. The WSJ noted on Nov. 12 that Japanese stocks rose despite continued uncertainty over U.S. and Japanese monetary policy. The yen breached 160 per dollar the same day, and Finance Minister Satsuki Katayama called recent moves one-sided and vowed action.
The link between inflation and currency is direct: a weaker yen raises import costs, which feeds core inflation, which raises pressure on the BOJ to tighten, which would strengthen the yen. The authorities are signalling that they would prefer to intervene than wait. With U.S. yields rising, the gap pulling money out of yen is widening, so a Japanese intervention would be working against the Treasury market, not alongside it.
Deficit Widens To 404
The U.S. budget balance for October printed at minus 404 against minus 298.6 expected and minus 27 the month before. The calendar gives no units; billions of dollars is the usual convention. A miss of more than 100 against forecast is large, and a Seeking Alpha outlook reports that October injected $401 billion of new spending power into the private sector, the highest since July.
That is the supply side of the Treasury selloff. More issuance meets a market already repricing inflation, which pushes term premiums up. It is also a support for equities in the short run, since spending enters the private sector as income. Continuing jobless claims of 1,697 thousand, below the 1,710 expected, add to the picture of a labour market that does not need the money.
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