(Bloomberg) -- Treasuries rallied, pushing 10-year yields below 3 percent for the first time since September, amid speculation prospects are diminishing for global interest-rate increases next year. European bonds also gained.
U.S. money-market pricing showed traders had scaled back expectations for Federal Reserve hikes to just one in 2019, from as many as two estimated earlier this month, after Chairman Jerome Powell said borrowing costs are “just below” a range of estimates of the so-called neutral level.
Across the Atlantic, investors were already ruling out any rate increases next year by the European Central Bank amid stalling euro-area growth and elevated political risks, most notably from Italy.
“Rates markets seem to be coming back down to earth,” said Richard Kelly, head of global strategy in London at Toronto-Dominion Bank. “This is almost the reverse of September when it was overreacting hawkishly and we kept pushing rates higher.”
U.S. 10-year yields dropped as much as 6.4 basis points to 2.9952 percent, the lowest level since Sept. 18. Rates on similar-maturity German bonds declined three basis points to 0.32 percent, and those on U.K. gilts fell six basis points to 1.32 percent.
The spread between Eurodollar futures expiring next month and those due a year later, a proxy for Fed rate hikes priced for 2019, slipped three basis points to 22 basis points, signaling a cut-back in tightening expectations.
The outlook for bunds, among this year’s best-performing assets globally, still remains positive for many in the market, with the ECB likely to face significant hurdles in its quest to normalize policy. Germany’s economy contracted for the first time since 2015 in the three months through September.