(Bloomberg) -- US Treasuries are poised to lock in weekly gains as haven demand trumps doubts over whether the Federal Reserve will deliver an interest rate cut next month.
The 10-year benchmark yield has fallen nine basis points over the past five days to 4.05%, the biggest weekly decline since the week ending October 10. The two-year yield has dropped by a similar margin, its largest weekly decline since September.
The moves come despite Fed officials including Austan Goolsbee and Michael Barr voicing caution on lowering borrowing costs again in December given inflation is still above target. More policymakers including NY Fed President John Williams are due to speak later Friday.
Still, bonds got a boost as risk appetite soured this week, putting global stocks on track for their steepest drop since the tariff turmoil of April. Focus turns Friday to November PMIs from S&P Global, which will offer fresh insight into the health of the US private sector.
The week's gains came despite a jump in volatility. The ICE BofA MOVE Index, a gauge of expected bond-market volatility, rebounded to a two-month high on Wednesday after reaching a four-year low during the government shutdown.
"US Treasuries are benefiting from the weaker risk tone in credit," said Pooja Kumra, senior UK and European rates strategist at Toronto Dominion Bank. Still, factors including lower liquidity ahead of the Thanksgiving holiday leaves the market "choppy," she added.
As well as parsing economic data, investors are grappling with the implications of a change in Fed leadership next year, when the incumbent Chair Jerome Powell's term is scheduled to end.
That's adding a layer of complexity to the current outlook and has left the market alert to comment from any potential replacement, including National Economic Council Director Kevin Hassett, who said on Thursday rates should be cut "right now."
Money markets added to the extent of cuts priced through 2026 on Friday, which underpinned further gains in Treasuries. The two-year yield fell two basis points to 3.51%. The chance of a Fed cut next month is around 40%.
Despite the concern of some Fed officials over lingering price pressure, markets seem less worried. A gauge of inflation over the next two years is headed for an eighth weekly decline, the longest streak since 2014.
More stories like this are available on bloomberg.com
