Rate Cut Expectations Cool Significantly; 10-Year Treasury Yield Rises to 4.15%; Important Delayed Data Soon to Be Released

Following the end of the US government shutdown, US Treasury yields continued their upward trend amid increasingly hawkish tones from the Federal Reserve. The 10-year Treasury yield moved further away from 4.0%, rising to 4.15% today. Official data releases were delayed during the government shutdown, making the September non-farm payrolls data scheduled for release on November 20 a potentially key guidance.

The Fixed Income Research Team of Industrial Securities believes that with the October rate cut materializing as expected, uncertainty regarding subsequent rate cuts has increased, leading to greater divergence in market pricing for a December rate cut. Simultaneously, the US government shutdown, which had been weighing on US equity markets, was resolved before the next Fed decision, leading to a repricing of expectations for US Treasuries.

Recently, hawkish voices within the Fed have multiplied. Cleveland Fed President HaMak stated last week that the Fed should maintain stable interest rates to continue putting pressure on inflation. Minneapolis Fed President Kashkari shifted from a dovish to a hawkish stance, saying the fundamental resilience of economic activity is stronger than expected, which does not support the Fed's previous rate cut decision, and he remains观望 on the best course of action for the December meeting. Fed Chair Powell said in late October that a December rate cut is far from a done deal.

The FICC team of China Zheshang Bank pointed out in a report that, alongside hawkish comments from officials, there have been some large sell orders in March 2025 SOFR futures and January 2026 federal funds futures, driving the market to lower its expectations for the magnitude of rate cuts at the December 10 FOMC meeting.

According to the latest data from CME Group's "FedWatch Tool," the probability of a 25-basis-point rate cut by the Fed in December has fallen to 44.4%, while the probability of keeping rates unchanged has risen to 55.6%. The CME's probability data for a December rate cut has been fluctuating since late October: it was 94.2% on October 15, dropped to 66.9% on November 7, then to 50.1% on November 13, and finally to 44.4% today.