Treasuries Gain as Traders Hold to Rate-Cut Bets After Fed

Treasuries rallied for a second day after a Federal Reserve meeting that proved less hawkish than expected, with yields falling across most tenors and the 10‑year briefly touching its lowest level in nearly a week; the move followed Chair Jerome Powell’s downplaying of dissent on a 25bp cut and the Fed’s announcement it will start short‑term Treasury purchases to ease funding strains. Demand for long paper held up at a $22 billion 30‑year auction awarded at 4.773% (just below the pre‑auction yield), and a surprise rise in initial jobless claims to 236,000 (vs. 220,000 expected) reinforced the bid for Treasuries. Money markets now price roughly a 50% chance of a March 2026 rate cut and about two cuts next year, a dovish outlook that strategists say is reviving a steeper yield‑curve trade even as upcoming long‑bond supply could test that theme.

Analysis

Treasuries rallied for a second session after the Federal Reserve’s policy meeting surprised markets by leaning less hawkish than anticipated; Chair Jerome Powell downplayed dissent on a 25bp cut and officials announced reserve-management purchases of short-term Treasuries. Yields fell across most tenors, with the 10-year briefly touching its lowest level in nearly a week and 30-year yields essentially unchanged at the New York close.

Demand for long-dated paper held in a $22 billion 30-year auction awarded at 4.773%, slightly below the pre-auction yield, signaling resilient bid-side interest despite the supply. A hotter-than-expected initial jobless claims print of 236,000 (versus 220,000 expected) — the highest since early-pandemic readings — also supported the Treasury bid, though the series is volatile around holidays.

Money markets now price roughly a 50% chance of a March 2026 rate cut and about two cuts next year, consistent with the Fed’s maintained projection for easing next year; strategists say this is reviving a steeper yield-curve trade. The dovish signal and Fed short-term purchases increase the case for lower yields, but forthcoming long-bond supply and incoming economic data (employment prints, auction demand) are the key near-term risks to the theme.

Key Decisions for Investors

• Consider modest duration extension or targeted long-10s exposure given the Fed’s dovish signals and announced short-term Treasury purchases,
• Monitor upcoming long-bond supply and 30-year auction results closely as a potential catalyst for yield repricing and liquidity stress,
• Trim or hedge long-duration exposure if sequential employment prints firm or if secondary demand at auctions weakens, which would signal higher-for-longer rates