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US 10-year, 30-year yields post largest weekly drop in 2

months

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US 2/10 yield curve hits flattest level in a month

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US one-year inflation expectations inch higher in November

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US rate futures price in one cut in December, two in 2025

By Gertrude Chavez-Dreyfuss, Alden Bentley

NEW YORK, Nov 8 (Reuters) - U.S. Treasury yields fell on

the long end of the curve on Friday as investors, ahead of a

long weekend, paused selling government debt and consolidated

positions to book profits after Republican Donald Trump's

victory in Tuesday's presidential election.

The bond market is closed on Monday for Veterans Day.

The benchmark U.S. 10-year yield posted its largest weekly

drop since early September. It was last down 2.7 basis points

(bps) at 4.316%.

U.S. 30-year yields were down 5.7 bps at 4.486%.

On the week, it slid 5.8 bps, its biggest weekly fall since

early September as well.

Going into the election, bond investors sold Treasuries,

pushing their yields to multi-month highs, as they priced in a

Trump victory. His re-emergence suggests more government

borrowings due to expected higher fiscal deficits under his

administration with lower taxes and higher tariffs.

"It's definitely very much like the classic 'buy the rumor,

sell the fact' event," said Brendan Murphy, head of fixed

income, North America, at Insight Investment in Boston, which

oversees $838.1 billion in assets.

"The market has done a very good job of anticipating the

outcome and pricing them in. And then you get position-squaring

in the aftermath of it, causing a near-term reversal," Murphy

added.

Treasury yields also fell after the cooler-than-expected

one-year inflation print, as indicated in the University of

Michigan's consumer sentiment report for November, analysts

said. Year-ahead inflation expectations of 2.6% in November

ticked down from October's reading of 2.7% and were the lowest

since December 2020.

The Michigan inflation print has gained more attention from

the Fed, with Chair Jerome Powell mentioning it in one of his

press conferences.

The Consumer Sentiment Index, however, climbed to 73.0 this

month, the highest since April, from 70.5 in October. The result

exceeded the median estimate among economists polled by Reuters

for a reading of 71.0. I

The Fed on Thursday gave markets a chance to take some

profits, when it lowered its fed funds target rate to

4.50%-4.75%, as expected. With inflation coming down and signs

of labor market loosening, the central bank eased by an

aggressive 50 basis points in September after holding rates at

5.25-5.50% since July 2023.

The U.S. rate futures market has priced in an 85% chance of

a another 25-bp easing at next month's policy meeting, and a 15%

probability of a pause in cuts, according to LSEG calculations.

For next year, rate futures have implied just two rate

reductions of 25 bps each.

Policymakers are preparing for what could be a more complex

economic picture after Trump takes office in January.

Kim Rupert, managing director of fixed income at Action

Economics in San Francisco, said Treasuries were digesting

recent movements and trying to find a course from here.

"The Trump trade has been a big factor," Rupert said. "The

Fed really didn't tell us much yesterday (Thursday). It wasn't

expected to. So now we're going to have to hang around these

levels to try to figure out the path ahead, but that's going to

require more data."

Next week, markets will be watching for the October Consumer

Price Index report on Wednesday, followed by producer prices on

Thursday.

In other maturities, the two-year yield, which

typically tracks interest rate expectations, rose 3.8 bps to

4.258%.

The yield curve, meanwhile, flattened on Friday, with the

gap between two-year and 10-year yields hitting 4.2 bps

late Friday, the lowest in a month. It was at

19.5 bps on Nov. 6, a day after the election.

Investors have been putting on trades that steepen the yield

curve, a popular bet when the Fed is in the midst of an easing

cycle. Friday's sharp decline in the curve suggested a bit of

position-squaring as well in line with other parts of the bond

market.