Bond Markets Diverge as Fed Holds Rates and Shifts Focus

Warsh avoided providing explicit forward guidance, emphasizing instead that rising productivity supports economic growth without necessarily fueling inflation. This nuance weighed on the dollar, which slipped 0.1% on the WSJ Dollar Index following his remarks. Investors are now recalibrating their expectations for December, with CME data showing an 83% probability of a rate hike, up from 78% the previous day.

Attention is shifting toward next week’s Treasury quarterly refunding announcement. Deutsche Bank strategists noted a clear retrenchment in demand for long-dated Treasurys, driven by a shrinking pool of buy-and-hold investors. They argue that with borrowing needs rising, the Treasury has a compelling case to proactively shorten the maturity profile of future debt issuance. Meanwhile, in London, the U.K. government unveiled a budget that marginally reduces the fiscal shortfall, pushing the 10-year gilt yield up to 5.351% as investors remain wary of the country's stagnant growth trajectory.