Market News

(Bloomberg) -- Treasuries gained, pushing the 10-year yield to 4% for the first time in a month, after White House National Economic Council Director Kevin Hassett emerged as the front-runner to serve as the next Federal Reserve chair.

Traders boosted bets on lower interest rates over the next year, reflecting the consensus view that Hassett would carry out the aggressive reductions in borrowing costs that President Donald Trump has been calling for.

Yields dipped across tenors with the benchmark 10-year’s slipping two basis points to 4%, the lowest level since the Fed’s meeting in late October.

Hassett is seen by Trump’s advisers and allies as leading the race to replace Jerome Powell, Bloomberg News reported, citing people familiar with the matter.

“The argument will be a weaker US dollar, lower front-end rates from May’s meeting onwards and steeper curves,” said Jordan Rochester, a head of macro strategy at Mizuho in London. Hassett is “a credible economist by background, previously working at the Fed as a senior economist, but some may argue his closeness to Trump makes him the patsy.”

The dollar slipped to a session low following the news, before paring the loss.

The move in Treasuries began earlier in the day after the release of data affirming labor-market weakness and a slump in oil prices.

Federal Reserve Governor Stephen Miran bolstered the outlook for rates by reiterating his view that the US economy needs large reductions. The Fed normally moves rates in increments of 25 basis points but has made moves of 50 basis points or more on occasion.

The addition of Hassett would give the Fed board two voting members — with Miran — “starting in June who are going to be arguing pretty proactively for 50, and the Fed chair generally gets what he wants unless there’s a strong argument otherwise,” said David Robin, an interest-rate strategist at TJM Institutional Services LLC.

“Hassett elevates the probability that the first one or two moves in the post-Powell regime are going to be 50,” he said.

Treasury Secretary Scott Bessent is leading the process to find a replacement for Powell, whose term as chair ends in May. Trump is expected to make an announcement by Dec. 25, with five candidates in the running.

Bessent said on CNBC that a key theme of his interviews has been simplifying the US central bank, which he indicated has become too complex in how it manages money markets.

Treasuries held their gains following the $70 billion auction — the biggest of the US government’s seven monthly fixed-rate debt auctions. The 3.562% auction result was slightly higher than the yield just before the 1 p.m. New York time bidding deadline.

With the hangover from the six-week US government shutdown that ended Nov. 12 continuing to delay official economic data, a debate over the likelihood of another Fed rate cut next month has turned on industry data such as ADP Research’s private payrolls gauges. For the four-week period ending Nov. 8, ADP reported an average drop of 13,500.

Market-implied expectations for a quarter-point rate cut on Dec. 10 held steady, with around 20 basis points of the move, close to 80%, priced in.

“The labor market is certainly softening and therefore getting ahead of it makes a little bit of sense,” Krishna Memani, chief investment officer at Lafayette College, said on Bloomberg Television. At the same time, the elevated inflation readings that some Fed policymakers say warrant pausing in December mean that 10-year Treasury yields “cannot drop too much even when growth is slowing.”

The Census Bureau and the Bureau of Labor Statistics released retail sales and producer prices data for September, more than a month later than originally scheduled, that were broadly in line with economist estimates. Neither elicited much market reaction.

--With assistance from Edward Bolingbroke and Anya Andrianova.