The rally that powered the US bond market toward its best year since 2020 has now left investors in suspense to see whether Treasuries can hold their impressive gains.

US 10-year yields declined last week, sending the benchmark back toward 4% as spasms in stocks and crypto sparked demand for bonds. Fresh commentary from John Williams, the president of the Federal Reserve Bank of New York, added to the bid, reviving expectations for an interest-rate cut next month. 

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Heading into the Thanksgiving holiday-shortened week, the benchmark Bloomberg Treasuries index is on track for a small gain in November after rising in eight of the prior 10 months. And yet, while the tone is still generally upbeat, the market is mired below October’s price highs and yields are range-bound. 

Absent a fresh bout of risk-off buying, and with no major economic data to speak of until after the Fed’s December meeting, that’s likely how things will stay for the foreseeable future, market watchers say. The 10-year yield was two basis points lower at 4.05% on Monday. 

“For a meaningful rally, the market is going to need some hard data,” said Kathy Jones, chief fixed-income strategist at Charles Schwab.

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The $30 trillion US bond market has been confined to a trading band in recent weeks as a lack of clear signals on jobs and inflation — complicated in part by distortions from the recent government shutdown — divided Fed policymakers and made a third consecutive rate cut less of a sure thing.

“Certainly there’s no catalyst for the 10-year to go below 4% again,” said Kevin Flanagan, head of fixed income strategy at WisdomTree. Across the yield curve, Treasuries are “stuck in the mud,” he added.

The lack of conviction is showing up in a measure of bond market volatility. Market swings remain near historical lows after picking up from last month’s four-year low.

Official US employment data for September was finally released on Thursday, but it revealed a mixed picture that did little to settle the debate about the central bank’s likely path. On Friday, though, odds for a December cut climbed back near 65% after New York Fed President Williams said he sees room to lower interest rates in the near term as the labor market softens.

Ahead of Williams’ remarks, Michael Feroli, the chief US economist at JPMorgan Chase & Co., changed his call for a rate cut next month, citing the jobs numbers. He expects the Fed to skip a reduction in December, but sees cuts in January and May.

Still, economists at Goldman Sachs Group Inc. expect a rate cut next month, followed by two more reductions in March and June.

“The risks for next year are tilted toward more cuts,” Jan Hatzius, the US bank’s chief economist, wrote in a client note. “The news on underlying inflation has been favorable and the deterioration in the job market — especially for college-educated workers — might be difficult to contain via the modest cyclical growth acceleration we expect,” he said.

Making matters trickier however, the government scrapped reports on October jobs and consumer prices, owing to the shutdown. November figures won’t be released until after policymakers meet in mid-December.

Several Fed officials urged caution about additional cuts before Williams spoke. Fed Governor Michael Barr said the US central bank needs to proceed with caution in considering additional interest-rate cuts. Chicago Fed President Austan Goolsbee signaled that he’s still apprehensive about delivering another rate cut next month. 

To be sure, zooming out, investors remain optimistic that the Fed will eventually lower rates over the next year to about 3% from just under 4% today, which would favor bonds. Net-long positions are holding near their highest level since April, according to the latest JPMorgan Chase survey, which came out before the release of the September employment report.

The lack of near-term data clarity, bond bulls say, merely delays, rather than derails, the Fed’s easing cycle as the labor market continues to cool. Traders are fully pricing in a quarter-point cut at the January meeting and 0.9 percentage points of easing over the next 12 months.

“If the Fed does not cut in December, we think it is likely they counterbalance that decision with a somewhat dovish message that leaves open the potential to reduce rates in January,” Deutsche Bank’s economists, including Matthew Luzzetti, wrote in a note. “In this way, December and January could be viewed somewhat interchangeably for the Committee at this point.”

A further selloff in equities could be a tailwind for bonds, prompting a flight to safety, according to Kelsey Berro, executive director for fixed income at JPMorgan Asset Management. The S&P 500 has fallen about 5% from its October peak amid concerns about a hawkish Fed and lofty valuations.

Otherwise, with no major catalyst on the immediate horizon, there’s scant incentive to go bold.

George Goncalves, head of US macro strategy at MUFG Securities Americas Inc., said he expects a Fed cut next month and a small rally in Treasuries by year-end, with more gains for US bonds expected next year as the central bank continues its reduction cycle. But for now, the proximity of year-end makes it hard to have “enough conviction to put on trades that matter.”