The Lombard Review
Markets & Finance

The market gives up on rate cuts

Curve removes 2024 easing

The Marriner S. Eccles Building, headquarters of the Federal Reserve Board, Washington
The Marriner S. Eccles Building, headquarters of the Federal Reserve Board, WashingtonPhoto: Federalreserve / Wikimedia Commons, Public domain
1 min read Data: 10Y ~4.6–4.7%

The sovereign bond market has executed a brutal capitulation. Having entered the year pricing in six Federal Reserve rate cuts, fixed-income markets have erased nearly the entire projected easing cycle for 2024. Ten-year Treasury yields have surged to 4.70 per cent, dragging mortgage pricing back toward eight per cent and battering equity multiples.

The Bureau of Engraving and Printing, which prints U.S. currency
The Bureau of Engraving and Printing, which prints U.S. currencyPhoto: Harrison Keely / Wikimedia Commons, CC BY 4.0

The Great Erasure

The repricing has been total and unforgiving. Bond allocators who piled into duration in late 2023 on hopes of swift capital appreciation are nursing severe mark-to-market losses. With benchmark base rates remaining cemented above five per cent, the entire sovereign curve has steepened to reflect the reality that monetary policy will remain restrictive for the foreseeable future.

The Manhattan skyline from Upper New York Bay
The Manhattan skyline from Upper New York BayPhoto: Jakub Hałun / Wikimedia Commons, CC BY 4.0

The total market erasure of 2024 rate cuts represents an expensive capitulation for duration bulls, confirming that sovereign yields must reflect structural inflation persistence.