US government bonds are on track to end September with a historic fifth-straight monthly gain even as bond traders pared slightly the amount of Federal Reserve easing they consider likely over the next year
Particularly short-maturity yields increased ahead of a speech by Fed Chair Jerome Powell later on Monday, indicating a decline in confidence that the central bank will implement another half-point reduction in interest rates in the coming months.
The first significant economic statistics for September, which include the employment report on October 4, will put that conviction to the test this week. The Bloomberg US Treasury Total Return Index indicates that through Friday, Treasury debt returned 1.4%. If it continues, it will be the longest monthly winning streak for the market since 2010.
After rising throughout the first few months of the year as hopes for Fed rate reduction were undermined by sticky inflation data, rates started a downward trend in April that turned losses into a 4.1% gain for the year.
Calling the gain “impressive,” Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities said the continuous run from April suggested “better inflation and slowing job growth.”
“Being more nimble at these levels,” he said, makes sense considering the magnitude of rate reduction the market is expecting. Futures swap contracts that bet on the Fed’s decision-making process price in almost two percentage points of cumulative easing over the course of the following 12 months and slightly over a percentage point by the end of January. The federal funds rate’s target range was established at 4.75% to 5% by the half-point decrease on September 18.