Treasuries Fall as Fed’s Waller Pushes Back on Dovish Rate Bets

Treasuries fell across the curve and the dollar strengthened against most of its major peers after Federal Reserve Governor Christoper Waller pushed back on bets the US central bank was nearing the end of its hiking cycle, while traders were also on alert for a scheduled appearance by his colleague Lael Brainard.

Benchmark 10-year Treasury yields climbed as much as nine basis points to 3.90% as trading kicked off again after a public holiday Friday, befor moving to around 3.88% in New York morning trading. Waller said the Fed has got a ways to go before its stops hiking and the market got “way out in front” over the unexpected cooling in inflation last week. A gauge of the greenback rose as much as 0.6% before shifting to be up around 0.4% on the day.

“Easier financial conditions risk undoing the Fed’s work to bring inflation sustainably down to target, so it is not surprising to see officials push back a bit,” Goldman Sachs Group Inc. analysts including Isabella Rosenberg wrote in a client note.

The dollar’s advance comes after a gauge of the currency slid 3.5% last week, its biggest decline since the early days of the pandemic, as traders trimmed bets on aggressive Fed hikes after US inflation was slower in October than economists forecast. Treasury yields also tumbled and stocks surged amid optimism the Fed wouldn’t need to increase rates as much as anticipated.