Treasuries held small gains in early US trading Monday, supported by a slump in oil prices and a rally in UK government bonds, and by anticipation of buying into Tuesday’s month-end index rebalancing.
Yields were lower, the two-year by about a basis point and long maturities by as much as three basis points, remaining inside last week’s ranges. US benchmark crude oil futures were down about 2% on signs OPEC+ will hike production again in November.
The prospect of a US government shutdown beginning Wednesday also has implications for the Treasury market, as shutdowns are associated with gains for bonds based on their potential to restrain the economy.
The market racked up gains even as Cleveland Fed President Beth Hammack — who becomes a voting member of the central bank’s rate-setting committee next year — reiterated her view that inflation remains too high to warrant cutting interest rates. Futures markets continue to anticipate about 100 basis points of additional Fed easing over the next 12 months.
Expectations for Fed rate cuts rest mainly on signs of stress in the US labor market, where job creation has slowed precipitously in recent months. September data is set to be released on Friday.
Tuesday’s month-end bond index rebalancing — to add eligible bonds created during the month and remove those that no longer fit the index criteria — typically drives buying by passive and other index-tracking investment funds that can support the market if their needs exceed expectations.
The rebalancing will increase the duration of the Bloomberg Treasury index by an estimated 0.06 year, less than the average for September over the past decade.
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