The dollar index reversed as well, dropping from up 1.06 at 113.94 top tick to the current down .78 at 112.10. That is a huge swing.
From Bloomberg via Yahoo Finance:
The Treasury market was upended Friday by a surge in wagers that circumstances will allow Federal Reserve to slow its pace of rate increases as early as year-end.
Yields across the spectrum rose to new multiyear highs in early trading on the prospect of unrelenting Federal Reserve rate increases to control inflation. That was followed by a violent reversal in short-dated yields as that thesis was undercut, in part by comments by San Francisco Fed President Mary Daly, who said it’ll be necessary for the central bank to decrease the size of its rate increases, to 50 or 25 basis points, without specifying when.
The move was most pronounced in the five-year sector, where yields rose as much as six basis points to 4.504%, the highest level since 2007, then sank nearly to 4.30%. The reversal in short-dated Treasuries was accompanied by traders slashing the expected Fed policy rate peak in 2023 -- which had exceeded 5% on Thursday -- back to around 4.9%.
The move was already under way before Daly spoke, sparked by a Wall Street Journal report that some Fed officials are concerned about overtightening. The central bank has raised the policy rate by three percentage points since March, with another three-quarter-point increase anticipated next month. The article said policy makers are also likely to debate whether to signal that a smaller hike is possible in December.
The difference between market wagers for a peak policy rate and what the Fed has signaled exposes the bond market to further big swings, said Gregory Faranello, head of US rates trading and strategy for at AmeriVet Securities.
“The Fed has signaled wanting to get in and around 4.75% and pausing, while we have a market terminal rate priced close to 5%,” Faranello said. “A likely scenario is a slower pathway following the November meeting,” which explains today’s price action, he added. “Liquidity issues also favor more volatile rate trading as banks pull away to lighten up their balance sheets before year-end.”....
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