Treasuries Slump as Powell Upends Market Bets on December Cut

by Michael MacKenzie, Ye Xie of Bloomberg News, 10/30/25

Treasuries fell the most in nearly five months after Federal Reserve Chair Jerome Powell cast doubt on a December interest-rate cut, even as a sagging labor market prompted policymakers to bring down borrowing costs Wednesday.

While the central bank delivered a widely expected reduction in the benchmark lending rate to 3.75%-4%, Powell’s hawkish outlook ruffled the $30 trillion US bond market. At his afternoon press conference, Powell said a further reduction in rates at the December meeting “is not a foregone conclusion,” sending yields across tenors up by the most since June.

“What caught the market somewhat by surprise is that he’s resetting deck chairs as related to the probability of a rate cut in December,” said Kelsey Berro, executive director for fixed income at JPMorgan Asset Management. “It looks like a deliberate attempt to make December more of a live meeting.”

Powell’s comments that policymakers will have to reassess downside risks to the labor market forced investors to retool their expectations for future rate cuts. Traders pared bets on another quarter-point cut in December, though they still see the reduction as likely.

“It sounds like Powell wants to put some daylight between the Fed’s view of future rate cuts and the markets,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management.

In remarks to reporters, Powell said, “There were strongly differing views today, and the takeaway from that is that we haven’t made a decision about December.”

For traders, the remarks took on additional importance amid the dearth of economic releases during the federal government shutdown.

It jolted a market in which yields had been trading near lows for the year. Rates on two-year notes — which are more sensitive to changes in expectations for monetary policy — jumped 11 basis points to 3.6%, the highest level in a month.

Traders adjusted the path of cuts over the coming year from 3% to 3.15% by September 2026.

The bond selloff spilled over into Asia, with Australia’s policy-sensitive three-year yields rising five basis points to 3.62% Thursday. New Zealand’s two-year yields climbed four basis points to 2.62%. Investors will turn to the Bank of Japan’s policy meeting decision due later in the day for their next clues on where global rates markets are headed.

Still, some expected the move in Treasury yields to be contained with the market still pricing in a relatively high chance of a December cut.

“I don’t think rates will sell off too far,” said Dan Carter, a senior portfolio manager at Fort Washington Investment Advisors. A “slowing” labor market “has been the justification to cut the past two meetings and it’s unlikely that will change between now and December.”

The bond market has rallied in recent months on signs of weaker job hiring. Measures of consumer inflation, meanwhile, remain above the Fed’s target, running near an annual pace of 3%.

Priya Misra, portfolio manager at JPMorgan Investment Management, called the decision “another risk management Fed rate cut that was expected by the markets.”

Dissents by Governor Stephen Miran — in favor of a larger reduction — and Kansas City Fed President Jeff Schmid, who preferred not to cut rates, “show the extent of divisions at the Fed regarding the balance of risks to the labor market and the level of the neutral rate,” she said.

Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities said, “it’s fair to say as Chairman Powell’s tenure nears an end other voices are emerging with little fear of repercussion.”

In another decision anticipated by the bond market, Fed officials announced they would conclude shrinking their $6.6 trillion balance sheet on December 1, marking the end of an initiative that has run for more than three years.

Since the central bank started reducing its portfolio in June 2022, more than $2 trillion in funds have left the financial system.

The rise in yields — with the 30-year rate moving eight basis points higher — may reflect “some disappointment in that the maturing proceeds will only be invested in T-bills and not other areas of the curve,” said Brandywine’s McIntyre.

Adds New Zealand bond yields in 10th paragraph. An earlier version corrected the scope of the yield move in the second paragraph.

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Bloomberg News provided this article. For more articles like this please visit bloomberg.com.

Treasuries Slump as Powell Upends Market Bets on December Cut

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