By Elizabeth Stanton and Carter Johnson
(Bloomberg) — Treasuries rallied and bond traders rushed back into bets on a December interest-rate cut after Federal Reserve of New York President John Williams signalled he’s open to lowering borrowing costs further.
Williams said Friday he sees room for another cut “in the near term” as labour conditions show signs of weakening. Market sentiment quickly shifted following the remarks, with investors boosting wagers on a third straight quarter-point cut.
Treasury yields fell for a second session, threatening to break out of the tight range they’ve been trading in for weeks. The rate on two-year notes — more sensitive to changes in Fed policy — dropped to the lowest level this month.
“Williams’ comments are key because he is one of the middle ground voters that might ultimately determine the outcome of the December rate decision,” said Vail Hartman, a U.S. rates strategist at BMO Capital Markets. “It wasn’t previously clear where he stood on the outlook for the December meeting.”
Traders, who earlier this week had all but abandoned expectations for further easing this year, are now pricing in nearly 70% odds of a reduction on Dec. 10, compared to about a 35% chance before Williams spoke.
The September jobs report Thursday showing rising unemployment also helped bolster rate-cut odds, which had been eroded as U.S. government officials said no more labour market data would be released until after the Fed decision.
Treasuries have posted gains as declines in U.S. stocks this week fueled haven demand for government bonds. Global equities are on track for their steepest drop since the tariff turmoil of April.
The U.S. 10-year yield has fallen nine basis points over the past five days to 4.06%, its biggest decline since the week ending October 10. The two-year has fallen by a similar margin, its largest weekly drop since September.
Fed officials appear deeply divided on their December decision, however. Three objected to the last cut in October, and several others — including most recently Austan Goolsbee and Michael Barr — are at least dubious about the need for another one this year in light on inflation trends.
What Bloomberg Strategists say…
“Bond yields broke out of the lower end of November’s range in early New York trading Friday amid a continued cautious tone and dovish Fedspeak. Bonds will take cues from risk assets as the week comes to an end, with a bias still on buying dips.”
—Alyce Andres, Macro Strategist, Markets Live
Boston Fed President Susan Collins, speaking after Williams on Friday, reiterated that upward pressure on consumer prices made her hesitant about the next policy move.
The week’s gains came despite a jump in volatility. The ICE BofA MOVE Index, a gauge of expected bond-market volatility, rebounded to a two-month high on Wednesday after reaching a four-year low during the government shutdown.
“U.S. Treasuries are benefiting from the weaker risk tone in credit,” said Pooja Kumra, senior UK and European rates strategist at Toronto Dominion Bank. Still, factors including lower liquidity ahead of the Thanksgiving holiday leaves the market “choppy,” she added.
As well as parsing economic data, investors are grappling with the implications of a change in Fed leadership next year, when the incumbent Chair Jerome Powell’s term is scheduled to end.
That’s adding a layer of complexity to the current outlook and has left the market alert to comment from any potential replacement, including National Economic Council Director Kevin Hassett, who said on Thursday rates should be cut “right now.”
Despite the concern of some Fed officials over lingering price pressure, markets seem less worried. A gauge of inflation over the next two years is headed for an eighth weekly decline, the longest streak since 2014.
The Bureau of Labor Statistics, meanwhile, cancelled the October consumer price index report due to the government shutdown. Some of the figures will be published with the November report later in mid-December.
–With assistance from Alice Gledhill and James Hirai.
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Last modified: November 21, 2025
