US Treasuries: Bear flattening as markets price more hikes – TD Securities

FXStreet Insights Team FXStreet

TD Securities reports that US Treasuries bear flattened sharply after stronger US CPI and hawkish comments from Governor Waller led markets to price in additional Fed tightening. Front-end yields moved higher, breakevens widened, and the bank warns that highly negative BE carry in early 2027 could become a headwind for the inflation-linked asset class.

Front-end repricing and BE carry headwinds

"Rates: Treasuries bear flattened sharply as the market penciled in more rate hikes."

"Markets leaned into Governor Waller's comments from earlier in the session around potentially needing a "catch up" 50bp hike, bringing pricing for hikes in December higher from 25bp to around 28bp and increasing pricing for hikes in 2027 to 45bp from 34bp."

"This pressured the front-end sharply higher, flattening the curve and moving BEs wider."

"Markets will be waiting on further Fedspeak to confirm whether other FOMC members agree with Waller before pushing December pricing higher."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD bounces off multi-month low, nears 0.6900

AUD/USD edges higher toward 0.6900 in the Asian session on Wednesday, recovering some of the previous day’s losses to its lowest level since March as the US Dollar stalls the hot US CPI-inspired rally amid hopes of a US-Iran peace deal. Meanwhile, hawkish comments from FOMC members have almost confirmed another December rate hike, which favors USD bulls and should cap the Aussie.

USD/JPY remains capped below 159.00 amid looming intervention risks

USD/JPY struggles to build on the previous day’s strong gains to a near one-month top as intervention risk supports the Japanese Yen while hopes of a US-Iran peace deal cap the safe-haven US Dollar. That keeps the pair's upside limited below 159.00, for now.

Gold extends gains beyond $4,050; upside seems capped as Fed hike bets support USD

Gold climbs further beyond $4,050 heading into the European session on Wednesday, reversing a part of the previous day's heavy losses, though the upside seems limited. Tuesday's hot US inflation figures fuel expectations of a more aggressive policy tightening by the US Federal Reserve (Fed). This helps the US Dollar (USD) preserve Tuesday's strong gains, despite hopes for US-Iran diplomacy, and might keep a lid on any meaningful appreciation for the non-yielding bullion.

Bitcoin at risk of sharp moves as leverage builds in derivatives markets

Bitcoin remains in a capped tone, trading around $73,800 after slipping to a low of $72,727 following the previous day’s hot US inflation figures. Institutional demand continues to weaken, with BTC spot Exchange Traded Funds recording a $95 million outflow on Tuesday, marking the fourth straight day of withdrawals. Traders should be cautious as a K33 Research report highlights that BTC is at risk of sharp moves as leverage builds in derivatives markets.

Hot CPI helps cement December Fed hike as Nvidia slumps

October CPI inflation landed yesterday and beat expectations across the board. Note that we only received the MM figures because of last year’s government shutdown. Headline MM came in at 0.4%, beating the 0.3% forecast, though below September's 0.6%. Core MM also came in at 0.3%, slightly higher than the 0.2% estimate and matching the prior month’s reading.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.