FOCUS OF THE WEEK

10Y US Treasury yields have edged lower in recent months, driven mainly by Fed easing. That said, the effect has been partially offset as Chair Powell pushed back against expectations of another cut in December, reducing odds from near-certainty to about 60%. Consequently, 10Y yields have been range-bound between 3.90% and 4.20% as markets await next weeks NFP release following the government reopening. Septembers report is expected to be stronger than Octobers, which likely reflects earlier federal worker layoffs and recent softness in alternative data. However, Septembers data will arrive with a significant lag, and a firm print is unlikely to ease investor concerns. Labour market worries should persist, supporting demand for Treasuries. Meanwhile inflation expectations have cooled as tariff-related concerns fade, and term premium has declined with fiscal risks receding.

Figure 1: Changes in spreads