The u.s. treasury yield rose again on Thursday, as traders continue to wait for new data that could provide further clues on Federal Reserve policy. Despite some safe-haven buying in u.s. treasuries in recent trading days due to news surrounding the Russia-Ukraine conflict, bulls seem to still be unable to lead a sustained rebound in the bond market.

Market data shows that u.s. treasury yields edged slightly higher overnight, continuing the recent selling trend in the bond market. Specifically, the 2-year u.s. treasury yield rose by 3.6 basis points to 4.359%, the 5-year u.s. treasury yield rose by 2.6 basis points to 4.31%, the 10-year u.s. treasury yield rose by 1.4 basis points to 4.427%, and the 30-year u.s. treasury yield rose by 0.7 basis points to 4.605%.

Currently, the indicators$U.S. 10-Year Treasury Notes Yield (US10Y.BD)$have been consolidating near five-month highs for several consecutive days. Traders are waiting for the employment and inflation data to be released in early December to look for new signs of the strength of the U.S. economy.

With investors betting on a Trump victory in the election, u.s. treasury yields have been rising steadily over the past two months, as it is expected that Trump is likely to implement multiple policies to promote economic growth. Analysts say that immigration reform and tariffs could also lead to higher inflation.

Subadra Rajappa, Head of U.S. Interest Rate Strategy at BNP Paribas, said, "The market is focused on signs of geopolitical tensions and Trump's policies, but there is currently no clear trend, so the recent changes in yields have been very minimal."

From the perspective of news, although the escalating tension between Russia and Ukraine continues to attract safe-haven buying of U.S. bonds - Putin confirmed on Thursday that new intermediate-range hypersonic missiles were tested in the real war against Ukraine, the overall weakness of U.S. bonds has not been reversed recently, largely due to the lack of confidence in the market about the Fed's next interest rate cut process.

There are signs that, as the U.S. economy remains more resilient than previously expected, and with Trump set to take office in January next year, traders have reduced their bets on the number of rate cuts by the Fed next year. As shown in the chart below, the interest rate market currently expects the Fed to only cut rates by a total of 70 basis points before the end of next year, meaning that a total of three 25 basis points rate cuts may no longer be achievable.

Deutsche Bank economists even predicted this week that the Fed, after cutting rates by 25 basis points in December this year, will pause its easing cycle next year.

The team of Deutsche Bank economists led by Matthew Luzzetti has raised their forecasts for next year's economic growth and inflation, while lowering their unemployment rate forecast, stating that a complete Republican victory could bring "earth-shaking changes" to the U.S. economy. The economists at the bank expect the Fed to avoid further rate cuts next year after lowering rates in December and only cut rates by 25 basis points again by the third quarter of 2026. They also predict that the nominal neutral interest rate will eventually fall between 3.75% and 4%.

However, it is worth mentioning that compared to the high level of pessimism in the market about the prospects for rate cuts, recent statements from Fed officials do not seem to be as hawkish.

FOMC voter and Chicago Fed President Charles Evans said on Thursday that he believes rates will "significantly decline," while expressing confidence in inflation approaching the Fed's target and the robust condition of the labor market.

Evans made the remarks that day at the Indiana Chamber of Commerce, where he did not specify if he supported further rate cuts next month, but raised a viewpoint supported by most officials: the current rate levels have not yet reached the ideal state. Evans stated that inflation levels have fallen over the past year and a half, moving towards the Fed's 2% target, the labor market has cooled slightly, and the economy is approaching a stable full employment state. Therefore, rates a year from now should be significantly lower than they are now.

Of course, considering the uncertainty and differences as to how low rates should fall, Evans also mentioned that as the target approaches, slowing down the pace of rate cuts may be a wise move.

In addition to Ghosn, the third person of the Federal Reserve and the President of the New York Fed, Williams, also stated in an interview on Thursday that he believes inflation is cooling down and interest rates will further decrease. Williams believes that by the end of next year, the federal funds rate will be lower than it is now, depending specifically on the data and progress we make.

In addition, Richmond Fed President Barkin also pointed out on Thursday that although monthly data released by government agencies shows a slowdown in progress towards inflation, he expects the inflation rate of the United States, the world's largest economy, to continue to decline.

Barkin stated that he does not want to "prejudge the situation in December," but added that the upcoming rate decision will depend on data, and the current data indicates that the economy is "quite prosperous." If inflation remains high above our target, then a rate cut needs to be carefully considered. And if the unemployment rate accelerates, then a more proactive rate cut will be necessary.

Editor/Rocky