US bond markets reacted to the Federal Reserve’s monetary policy decision and a series of macroeconomic indicators released during the week.
Analysis
US 10-year Treasury yields crossed the 5.2% threshold after the Fed raised its policy rate by 25 basis points. The manufacturing PMI reached its highest level since July 2021, while a 2-year bond auction saw higher yield demands. The market now awaits upcoming US PCE inflation and September labor market data.
Opportunity
Rising bond yields increase the cost of capital for heavily indebted companies, but can offer attractive entry points in fixed income for yield-seeking investors, particularly if inflation confirms a disinflationary trajectory. Confirmation of disinflation in upcoming PCE releases would pave the way for a more durable Fed pause, which could in turn support a rebound in growth stocks and longer-duration bonds, currently penalised by rising long-term rates.
Investor Outlook: Negative (risk assets, short term)
Rising long-term rates are a headwind for long-duration asset valuations (technology, growth); upcoming inflation and employment data will be decisive for the rate trajectory.
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