Bond Traders Cut Expectations for How High Fed Rates Need to Go

Bond traders dialed back their expectations for how high they think the Federal Reserve might need to push its benchmark in the wake of fresh comments from central bank boss Jerome Powell, with swap markets suggesting the key overnight rate might peak below 5%.

Treasuries rallied across the curve, with securities in the front-end and belly leading the way after chair signaled a downshift in the pace of central bank tightening in December. While he cautioned that more rate hikes are yet to come, the yield on the policy sensitive two-year yield fell as much as 16 basis points to a session low of 4.31%. The Treasury rally picked up speed late in New York with yields falling to their session lows, as traders closed their books for November and investors added bonds to their portfolios.