Last week we had a rally after all TSY auctions were met with strong demand. Rates rallied on the belly of the curve, with 10-year Swaps down 19 BPS and 2-year Swaps down 16 BPS last week. This is significant relief from fairly elevated levels. The next FOMC meeting is on 12/18, so we’re entering the Fed’s quiet period. There’s a 65% chance of another cut this month, with 3 total priced in by the end of 2025, putting the terminal rate at 3.71%. The Fed’s Minutes from last month’s meeting state they will gradually lower rates to get to their neutral rate, suggesting a slower pace than people expected initially. The market found comfort in Trump’s nomination of Scott Bessent as Treasury Secretary. He’s viewed as a more moderate pick than expected. PCE data came in mostly as expected but still slightly elevated from what we’d like to see.
The focus this week will be on jobs. JOLTS data tomorrow will be watched closely, but the headline number on the week will be Friday’s Nonfarm Payroll data. Last release showed an extremely low figure, but the integrity of the results was brought into question for several reasons. We’re hoping for a big improvement this time, with 200k jobs expected. If we don’t see a big pickup, yields may tick lower.
