Longer maturities led the selloff, with 10 to 30 year yields up by over five basis points at one stage. Those gains eased after big tech slid as the US session began at 9:30 a.m. in New York. Short-end yields gave back their early rise once stocks started trading.
That followed a Thursday rally that pushed yields to multiweek lows, helped by bets the government may dial back sales of its longest dated debt beginning next month. Speculation about smaller long-end auctions has supported the far end of the curve versus shorter maturities.
During a Friday morning panel in Bangkok at the IMF's annual meetings, Federal Reserve Chairman Kevin Warsh avoided offering views on monetary policy or the state of the US economy. With no new steer from the Fed, Treasuries traded off shifts in global risk appetite, which firmed modestly on Friday after haven buying the day before when AI linked shares tumbled.
Pricing still points to the Fed keeping rates unchanged later this month and raising them in December. Expectations further out barely budged after Warsh's remarks, with swaps indicating three additional 25 basis point hikes over the next 12 months. His decision not to sound more hawkish shored up conviction on a hold now, and the implied chance of a hike this month slipped to 20% from 30%.
Leejun Foo, a fixed income strategist at Mizuho International, said, "This is the classic paring back the rally we had yesterday." "The selling we're seeing is in the long-end, driven by factors such as higher growth, inflation, and fiscal concerns, all of which haven't gone away."
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The Treasury Department is preparing its quarterly refunding policy statement for Nov. 4. The process starts Friday with survey questions to roughly two dozen primary dealers, set for release at 12 p.m. Washington time. Asking dealers about the market impact of potential cuts to long-end supply has already buoyed long bonds, but TD Securities cautioned Treasuries could cheapen versus interest rate swaps if the questions fall short of "lofty expectations."
Bloomberg's Garfield Reynolds wrote that higher energy costs threaten to stoke inflation, which could pressure Treasuries and cap stock rebounds. At Standard Bank, Steven Barrow, who heads G10 strategy, argued that the brief bounce in US debt demonstrates its safe-haven appeal is waning as global investors shift more toward equities, adding, "Treasuries are not about to become some sort of safe-asset, get-out-of-jail-free card for burnt stockholders."
Behind the supply debate is a heavier borrowing load: deficits persist and interest costs on existing debt have doubled in the past five years. Even so, analysts say the government can lean more on short-term bills, keeping long-end auction sizes steady or even trimming them. Meanwhile, fresh data this week signaled still firm inflation at both consumer and wholesale levels, helping keep yields elevated. Thursday's slump in tech also prompted some to pare short positions in the long end, with yields sitting at levels not seen in over twenty years.
Bond prices are being pulled by three forces at once: a risk-on equity bounce, a Fed path that still points to a pause now and more tightening ahead, and supply signals tied to the dealer survey and the Nov. 4 refunding plan. The drop in the market's near term hike odds to 20%, alongside swaps implying three more 25 bp increases over the next year, shows timing is the swing factor.
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