Morning Bid: Waller and Bessent Help Peg Back Treasury Yields

In a week marked by inflation-inspired volatility in U.S. Treasury yields, salvos from a Federal Reserve governor and the incoming Treasury Secretary have helped to steady the market and ease investor concerns. Christopher Waller, a Fed board governor, and Scott Bessent, President-elect Donald Trump's pick for Treasury Secretary, have both made dovish remarks that have influenced market sentiment and contributed to a rally in Treasuries.

Waller's suggestion of three or four interest rate cuts this year, coupled with his welcoming of the week's surprisingly soft inflation report, has led to a significant retreat in U.S. Treasury yields. Two-year yields have slipped below 4.45%, while the 10-year yield has probed back under 4.60%. This reversal in yields has also contributed to a retreat in the dollar and a rise in stock index futures.

Bessent's confirmation hearing on Thursday was another important marker for the debt market and the dollar. He underscored plans for a rollover of Trump's 2017 tax cuts and supported the dollar's dominant global role. His experience as a Wall Street trader has also reassured markets that he will be sensitive to investor concerns and calibrate policies accordingly.

The rally in Treasuries has seen the 10-year yield fall almost 10 basis points from Friday's close, while the 30-year yield has also retreated. This has contributed to a retreat in the dollar index, with the euro recovering ground from its sharp plunge late last week.

Overseas, news of a 5% Chinese gross domestic product growth for 2024 met both market forecasts and the government's target. Fourth quarter annual readings were higher than expected at 5.4%, and both industrial and retail sales growth in December also surprised to the upside. However, longer-term problems for the Chinese economy continued to lurk, with data showing that the population there fell last year for the third year running.

In Europe, euro zone inflation came in as expected, but there was another negative surprise for Britain's struggling economy with a surprise drop in UK retail sales in December. The pound and recently edgy British gilt yields slipped.

Key developments that should provide more direction to U.S. markets later on Friday include U.S. December housing starts and permits, Dec industrial production, Nov TIC data on foreign holdings of Treasuries, and U.S. corporate earnings from State Street, Citizens Financial, Regions Financial, Truist, Huntington Bancshares, Schlumberger, and Fastenal.



In conclusion, the dovish remarks from Fed governor Christopher Waller and incoming Treasury Secretary Scott Bessent have helped to peg back U.S. Treasury yields, contributing to a retreat in the dollar and a rise in stock index futures. The rally in Treasuries has seen yields fall significantly, while the dollar index has also retreated. Overseas, news of Chinese economic growth and European inflation data have also influenced market sentiment. As the Thanksgiving holiday week begins, investors will be watching key economic indicators and corporate earnings for further guidance on the direction of the markets.