According to Yahoo News, this year's turbulent journey for the world's largest debt market may conclude on a positive note as Treasuries surge this month to eliminate losses of up to 3.3% in 2023. The Bloomberg US Treasury Index increased 0.2% on Monday, returning to approximately where it concluded in 2022. Investors who predicted that 2023 would be the 'year of the bond' were instead confronted with waves of chaos as a robust US economy led the Federal Reserve to prolong its most aggressive tightening cycle in a generation.
However, those losses have ceased as decelerating inflation and indications of a weakening labor market prompt traders to wager that the Fed has finished raising interest rates and will quickly shift toward lowering the benchmark rate in the first half of 2024. Andrew Ticehurst, a rates strategist in Sydney for Nomura Inc., stated that growth momentum and inflation momentum have both peaked, and central bank tightening cycles are complete, leaving room for rates to rally on risk-off developments.
The $26 trillion Treasury market experienced fluctuations this year typically associated with riskier assets like equities. Implied volatility for the Treasuries market reached its highest level since the 2008 financial crisis in March, as per ICE's MOVE Index. The Bloomberg measure of Treasuries increased 2.8% this month, the largest monthly gain since March. Traders have shifted from a 40% probability of another Fed hike at the end of October to ruling out increases and expecting a rate cut by mid-2024, according to Fed funds futures.