The Treasury rally that began on hot growth and inflation data carried into the month end. The five year yield fell 8.0 basis points on October 30 to 4.72 percent, the 10 year fell 6.0 basis points to 4.93 percent and the 30 year fell 2.0 basis points to 5.31 percent. On the week the five year is down 8.4 basis points, the 10 year down 5.9 basis points and the 30 year down 0.6 basis points, so the week’s easing is concentrated in the belly of the curve, not the long end.
The move did not come from softer policy expectations. The same day, St. Louis Fed President Alberto Musalem said additional firming will be necessary, and soon, Dallas Fed President Lorie Logan said at least two more 25 basis point increases are needed, and Reuters reported markets still expect an increase at the December meeting. December pricing did not collapse; duration was bought anyway.
Currencies were quiet by comparison. The dollar index closed at 101.88, down 0.16 percent on the day and up 0.07 percent on the week. EUR/USD was 1.1183, USD/JPY 157.8 and GBP/USD 1.3379. USD/CAD was 1.3973, holding most of the loonie’s post hike gains.
The pattern of the week is now consistent across two sessions: data and officials argue in one direction, yields move in the other. That is the signature of a market that is long protection against equity and geopolitical risk and is treating the December hike as already in the price, rather than a market changing its mind about the Fed.