Bond Rally Intensifies as Fed Rate-Cut Odds Soar to 82.7%

U.S. Treasuries just delivered another impressive performance, with the 10-year yield diving 3.6 basis points to 4.002%—marking its lowest close since dipping below 4% back in October. The bond rally has now stretched across multiple sessions, fueled by a perfect storm of dovish Fed signals and weakening economic data.

Here’s what spooked the markets:

The Economic Reality Check

• Retail sales growth disappointed in September, coming in below forecasts
• Private sector job losses accelerated dramatically: employers trimmed an average of 13,500 jobs weekly over the past four weeks, vs. just 2,500 in the prior period
• Consumer confidence took a nosedive—the Conference Board’s index crashed to 88.7 in November from 95.5 in October (economists had only predicted a drop to 93.3)
• Producer prices held steady, suggesting inflation pressure easing

The Fed Rate-Cut Catalyst Here’s the kicker: CME’s FedWatch Tool now prices in an 82.7% probability of another 0.25% rate cut next month, up sharply from 50.1% just a week ago. That shift alone is enough to explain the bond bid.

Treasury Auction Holds Its Own The $70 billion five-year note auction this month pulled in slightly above-average demand, a sign that investors remain engaged despite the volatility.

Bottom line: Bond traders are betting the Fed pivots harder toward stimulus mode as the economy loses momentum. Whether that story holds through year-end depends on this week’s durable goods and jobless claims reports—though trading could thin out with Thanksgiving approaching.