Fixed income

The resilience of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening.

Optimism tied to an ebb in inflation was on full display this week in US government debt, with yields across the curve slumping as the data was seen supporting the case for lower borrowing costs as soon as September.

The U.S. 30-year yield reached the highest level in a month on Monday amid predictions that a Trump presidency would lead to higher inflation.

Traders are now betting that may be enough for the Federal Reserve to start cutting interest rates as soon as September.

The move was led by the two-year yield, which at one point fell nearly 8 basis points below 4.69% — short of last week's low 4.65%.

The $39 billion 10-year note sale was awarded at 4.438%, compared with a yield of 4.458% in pre-auction trading at 1 p.m. New York time, the bidding deadline.

Treasury yields surged across the curve on Friday, while traders — as well as economists at JPMorgan Chase & Co. and Citigroup Inc. — pushed out their expectations for the Fed's first rate reduction.

The recalibration came amid the best two-day rally for short-end Treasuries since January, following the central bank's latest policy meeting on Wednesday.

Traders have built positions in options linked to the Secured Overnight Financing Rate targeting a scenario where officials keep rates steady past December's policy meeting.

Traders are no longer fully pricing in a rate cut before November, while at the start of the year, cuts beginning in March were fully priced in.