U.S. Treasury Yields Steady Ahead of Fed Decision as Markets Price In High Probability of Rate Cut

Economic

Summary:

U.S. Treasury yields remained mostly flat on Monday as markets brace for a likely 25-basis-point rate cut from the Federal Reserve this week, with investor focus shifting to signals on future easing cycles....

Treasury Yields Flat as Markets Await Fed's Final Move of the Year

U.S. bond markets entered the week in a holding pattern, with yields across the curve showing minimal movement ahead of the Federal Reserve’s highly anticipated final policy decision of 2025. At 2:39 a.m. New York time, the 10-year Treasury yield held steady at 4.141%, the 30-year yield was similarly unchanged at 4.794%, and the 2-year yield saw only a minor fluctuation at 3.561%.

This calm in yields reflects market consensus that the Fed is poised to deliver a 25-basis-point rate cut when it concludes its two-day meeting on Wednesday. Data from the CME FedWatch tool shows traders are assigning an 87% probability to the cut, up significantly from 67% just a month ago, highlighting the influence of recent economic indicators and shifting policy commentary.

Recent Economic Data Reinforces Case for Easing

Expectations of a rate cut have been reinforced by a mix of softer labor data and subdued inflation readings. Last week’s ADP report surprised markets with a drop in private payrolls, while jobless claims for the week ending November 29 fell to their lowest level since September 2022. These indicators suggest a cooling labor market without signaling a major downturn, a combination that supports the Fed’s potential pivot toward easing without raising immediate recession alarms.

In parallel, the delayed release of the September core Personal Consumption Expenditures (PCE) index came in below forecasts, further justifying a dovish tilt. While the Fed’s mandate includes both employment and price stability, this recent data mix has helped ease concerns about inflation persistence, allowing policymakers more room to maneuver.

Market Reactions and Institutional Forecast Adjustments

Investment banks have quickly adjusted their forecasts. Morgan Stanley recently reversed its earlier projection, now expecting a cut in December after acknowledging their previous call “jumped the gun.” JPMorgan and Bank of America have also aligned with the view that the Fed will lower rates this week, citing more dovish tones from Fed officials and the broader macro backdrop.

The bond market’s muted response reflects how thoroughly the cut has already been priced in. While short-term Treasuries such as the 2-year note have shown slight movement, yields on long-dated securities like the 30-year have remained largely unmoved, suggesting that investors are more focused on guidance for 2026 and beyond rather than the immediate policy adjustment.

Economic Outlook Boosted by Strong Holiday Season and GDP Momentum

Adding to the market’s confidence, Treasury Secretary Scott Bessent noted over the weekend that consumer activity during the holiday season has been “very strong,” and projected that the economy will close the year with roughly 3% real GDP growth despite political gridlock. He cited recent quarterly growth exceeding 4% as evidence of sustained economic momentum.

This macro backdrop has likely given the Fed added confidence to cut rates without triggering fears of overheating or inflation resurgence. The implication is that the Fed is moving from a phase of restrictive policy to one of normalization, rather than engaging in aggressive stimulus.

Global Central Banks Also in Focus

This week also marks a key period for monetary policy globally. The Swiss National Bank is scheduled to deliver its policy update on Thursday, while the Bank of England and European Central Bank will issue their rate decisions on December 18. Both institutions are expected to take cues from the Fed’s move. The Bank of Japan will follow with its final policy meeting of the year on December 19.

These decisions will be closely watched for signs of synchronization or divergence in global monetary policy, particularly as Europe grapples with persistent inflation and Japan remains cautious about exiting ultra-loose policy.

Treasury yields remain steady as markets await confirmation of a widely expected Fed rate cut this week. Recent labor and inflation data have solidified expectations, while commentary from policymakers and strong economic growth have created a favorable environment for easing. The real focus, however, will be on the Fed’s forward guidance whether this week’s move marks the beginning of a sustained rate-cutting cycle or a one-off adjustment to recalibrate monetary conditions heading into 2026.

Source: CNBC

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Glendon

Forex

Economic

The dollar eased on Monday, ahead of a week packed with central bank meetings and headlined by the U.S. Federal Reserve, where an interest rate cut is all but priced in, although a highly divided committee makes for a wild card.

Besides the Fed decision on Wednesday, the central banks of Australia, Brazil, Canada and Switzerland also hold rate-setting meetings, although none of these are expected to make any changes to monetary policy.

Analysts expect the Fed to make a "hawkish cut", where the language of the statement, median forecasts and Chair Jerome Powell's press conference point to a higher bar on further rate reduction.

That could support the dollar if it pushes investors to dial back expectations for two or three rate cuts next year, though messaging could be complicated by policymakers' division as several have already all but indicated their voting intentions.

HIGH RISK OF DISSENT

"We expect to see some dissents, potentially from both hawkish and dovish members," said BNY's head of markets macro strategy Bob Savage in a note to clients.

The Federal Open Market Committee has not had three or more dissents at a meeting since 2019, and that has happened just nine times since 1990.

Even though the U.S. currency has drifted lower for the past three weeks, dollar bulls have recovered some of their bottle. Weekly positioning data shows speculators hold their largest long position - one that assumes the value of the dollar will rise - since before President Donald Trump's "Liberation Day" tariff bombshell that sent the currency tumbling.

The labour market is softening, but overall growth is holding up, the stimulus from the "One Big Beautiful Bill" should start to filter through and inflation is still well above the central bank's target rate of 2%.

"These factors could discourage additional rate cuts if they spill over into stronger labour market conditions," MUFG currency strategist Lee Hardman said.

EURO LIFTED BY RISE IN YIELDS

Beyond U.S. monetary policy, the euro edged up 0.1% to $1.1652, lifted by higher euro zone bond yields. German 30-year yields hit their highest since 2011 in early trading.

Unlike the Fed, the ECB is not expected to cut rates again in the coming year. Influential policymaker Isabel Schnabel on Monday said the central bank's next move could even be a hike.

The Australian dollar briefly touched a high of $0.6649, the highest since mid-September, to last trade down 0.1% on the day at $0.6635.

The Reserve Bank of Australia meets on Tuesday after a run of hot data on inflation, economic growth and household spending. Futures imply the next move will be up and possibly as soon as May, leaving the focus on the post-meeting statement and media conference.

"We expect the RBA to be on an extended hold, with the cash rate to remain at its current level of 3.60%," said analysts at ANZ in a note last week, revising previous expectations for a cut.

CANADA EXPECTED TO HOLD

The Bank of Canada is also widely expected to leave its interest rate on hold on Wednesday and a hike is fully priced by December 2026. The currency was steady at C$1.3819 on Monday, having hit 10-week highs on Friday following strong jobs data.

The yen , which has stabilised in this past week, having weakened sharply in November, was mostly steady at 155.44 per dollar, while sterling held around $1.3325 and the Swiss franc was a touch stronger at 0.804 francs.

Source: Reuters

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Justin

Forex

Cryptocurrency

What to Know:

· Eric Balchunas refutes Bitcoin-tulip analogy; emphasizes institutional adoption.

· Bitcoin shows 17-year resilience and multi-cycle performance.

· Bitcoin's adoption mirrors other valuable non-productive assets like gold.

Bloomberg's Eric Balchunas dismisses comparisons between Bitcoin and tulip mania, citing its resilience and institutional adoption at a recent financial analysis event.

This perspective strengthens Bitcoin's position as a durable macro asset, supporting institutional interest and market confidence amidst ongoing asset volatility.

Eric Balchunas, a senior ETF analyst at Bloomberg, has rejected the notion that Bitcoin is a modern tulip mania, highlighting its long-term resilience and institutional interest.

This analysis underscores Bitcoin's lasting appeal and invalidates the comparison to historical speculative bubbles, reassuring both institutional and retail investors.

Bitcoin's Resilience Over 17 Years Highlighted

Balchunas refutes the "Bitcoin = tulip mania" analogy, arguing Bitcoin's 17‑year history of resilience differs vastly from the three-year tulip bubble. He highlights ongoing institutional adoption as a key factor in Bitcoin's durability.

Bloomberg's senior ETF analyst noted Bitcoin's performance, gaining approximately 250% over the past three years. His statements challenge historical perceptions and support Bitcoin as a durable financial asset.

"The tulip market rose and collapsed in around three years, punched once in the face and knocked out, whereas Bitcoin has been through 6–7 brutal selloffs over 17 years and still makes new highs." - Eric Balchunas, Senior ETF Analyst, Bloomberg Intelligence

Institutional Confidence and Market Impact

Balchunas' assertions bolster confidence in Bitcoin's stability among investors. His analysis emphasizes continuing institutional interest, contrary to the short-lived tulip mania. Institutional flows remain strong, highlighting Bitcoin's sustained market presence.

Financially, Bitcoin's resilience enhances its status among non-productive store-of-value assets like gold. Institutional backing and ETF flows signify an asset exceeding typical bubble characteristics, supporting long-term strategic investments.

Bitcoin's Recovery Mirrors Gold, Says Balchunas

Historically, Bitcoin has rebounded from deep drawdowns, mirroring other resilient assets like gold. Balchunas' insights indicate a pattern of recovery and growth not aligned with single-cycle bubbles.

This analysis suggests that Bitcoin's role as a macro asset is cemented by its historical performance, encouraging ongoing adoption and positioning it beyond mere speculative comparisons.

Source: CryptoSlate

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Gerik

Economic

AI Momentum in Automotive Faces a Sharp Drop-Off by 2029

The latest report by technology research firm Gartner paints a stark picture for the future of artificial intelligence adoption in the global automotive sector. While AI development is currently a central strategic focus for nearly all automakers, the report forecasts that by 2029, only around 5% of companies will sustain robust investment growth in AI. This projected decline raises fundamental concerns about whether the current surge of AI enthusiasm can translate into long-term transformation and competitive advantage across the industry.

According to Gartner’s analysis, the future of automotive AI will be dictated not by manufacturing prowess, but by software fluency and leadership commitment. Companies like Tesla and BYD, which are built on digital-first models, are expected to dominate the AI frontier due to their internal tech capabilities and executive-level prioritization of innovation. By contrast, legacy automakers such as Volkswagen face structural and cultural barriers that continue to inhibit their ability to compete at the same pace.

The causal relationship here is clear: without strong internal software foundations and leadership alignment, traditional carmakers will be unable to scale or sustain AI initiatives. Analyst Pedro Pacheco from Gartner emphasized that success in this space demands deep organizational change, including the removal of internal roadblocks and the elevation of software leadership to the highest decision-making levels. Failure to adapt, he warned, will leave these firms at a perpetual disadvantage.

From Engineering Excellence to Digital Adaptation

Historically, the automotive industry has rewarded excellence in mechanical engineering and production. However, the shift toward autonomous driving, intelligent mobility services, and AI-powered vehicle systems demands a complete transformation of that legacy. Automakers now face the challenge of transitioning from hardware-centric models to software-driven operations—something only a few are equipped to achieve.

Tesla and BYD stand as case studies in this new era, having integrated AI into their operations from the outset. Their vehicles are as much software platforms as they are physical products, giving them a significant lead not just in AI integration but also in customer experience, predictive maintenance, and autonomous capabilities.

Structural Resistance Slows Legacy Players

Despite mounting pressure to innovate, traditional automakers remain constrained by legacy systems and risk-averse cultures. Gartner’s report highlights that many companies lack the internal agility to pivot toward AI-led strategies. Pacheco pointed to the need for automakers to become “digital-first” organizations, with AI leadership reporting directly to CEOs. Without this level of strategic alignment, AI investments risk being superficial or unsustainable, ultimately widening the gap between tech-driven and legacy players.

Gartner’s 2026 outlook for the automotive sector serves as both a warning and a roadmap. The industry’s AI gold rush may be short-lived for many, unless there is a fundamental rethinking of how technology is prioritized and integrated within corporate structures. As the divide grows between software-native automakers and traditional manufacturers struggling to adapt, the next four years will likely determine who leads the industry into the AI-driven future and who gets left behind.

Source: Reuters

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Gerik

Economic

Stocks

Cautious Opening as Europe Eyes Fed’s Policy Signal

European equities are poised for a subdued start to the week, with market participants remaining cautious ahead of the U.S. Federal Reserve’s final policy meeting of 2025. Futures data indicate a slight dip in the UK’s FTSE 100 by 0.1%, flat openings for Germany’s DAX and France’s CAC 40, and a modest 0.17% decline in Italy’s FTSE MIB. This hesitancy reflects a broader global pause, as investors wait for clarity on the Fed’s next move and its implications for global monetary policy alignment.

Markets have priced in an 87% probability of a 25-basis-point rate cut from the Fed, according to the CME FedWatch tool. If realized, this would be the central bank’s final policy move for the year, capping a volatile period of tightening and cautious easing. The anticipated rate cut follows softer-than-expected U.S. core personal consumption expenditures (PCE) data for September, which reinforced the view that inflationary pressures are easing. This latest data point, though delayed, served as one of the final economic indicators before the Fed’s decision and bolstered investor confidence in a dovish shift.

The causal link between cooling inflation and expectations of monetary easing is clear in this instance. The decline in PCE supports a Fed pivot, and market sentiment has responded accordingly.

European and Asian Markets Mirror Global Uncertainty

While the Fed sets the tone, other central banks are preparing to weigh in. The Swiss National Bank is scheduled to release its policy update on Thursday, while the European Central Bank and Bank of England will meet on December 18. The ECB is expected to hold rates steady, while debate continues over whether the BOE will begin easing or maintain its cautious stance amid lingering inflation concerns.

Asian markets traded mixed overnight, influenced by China’s stronger-than-expected export data for November. This development had limited spillover effect on European sentiment, as traders remain more focused on domestic economic indicators and central bank forecasts.

Macro Events Drive Market Narrative in Absence of Earnings

With no major corporate earnings expected in Europe on Monday, attention has shifted fully to macroeconomic developments. German industrial production data, due later in the day, will offer insight into Europe’s largest economy and may influence sentiment, especially if it deviates from consensus estimates.

U.S. futures remained nearly unchanged on Sunday night, suggesting investors are not willing to take directional bets until Wednesday’s Fed announcement. Friday’s rally in U.S. stocks, triggered by the benign PCE inflation print, is still fresh in investors’ minds but has not carried over with strength into Monday’s trading outlook.

European markets are entering the week cautiously, reflecting global investor hesitance ahead of the U.S. Fed’s pivotal rate decision. While optimism exists around the possibility of easing monetary conditions, particularly in the U.S., markets are restrained by the need for confirmation. This wait-and-see approach underscores the dominant influence of central bank actions on global equity momentum as 2025 draws to a close. Traders across Europe are positioning portfolios defensively, awaiting macro clarity before making broader risk-on moves.

Source: CNBC

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Danske Bank

Forex

Political

Economic

Central Bank

In focus today

In the euro area, focus turns to the Sentix investor confidence indicator for December and the German industrial production data for October. The Sentix indicator will give us the first signal of investor confidence in December while German industrial production is the first 'hard data' for Q4. The German PMIs suggest that industrial production in October was little changed compared to September.

Early tomorrow morning, the Reserve Bank of Australia RBA will hold its final monetary policy meeting of the year. We expect no policy changes, in line with consensus and market pricing. Recent solid economic data has driven a hawkish repricing of markets' policy rate expectations, with the next most likely policy change being a rate hike in H2 2026.

The big event this week is the FOMC meeting on Wednesday, preceded by the much-delayed September JOLTS job openings data on Tuesday. Rate decisions from Canada (Wednesday) as well as Switzerland and Turkey (Thursday) will also draw attention. In Scandinavia, notable data releases include final Swedish CPI and growth figures, Norwegian CPI, and Norges Bank's regional network report.

Economic and market news

What happened overnight

In China, November trade data showed exports rising by 5.9% y/y (prior: -1.1%), exceeding expectations due to strong growth in shipments to non-US markets amid elevated US tariffs. Imports rose 1.9% y/y (prior: 1.0%), below forecasts and signalling subdued domestic demand. This marks the first time China's year-to-date trade surplus in goods exceeded USD 1tn. Read more in Research China – A two-speed economy, 8 December.

In Japan, total cash earnings were up 2.6% y/y in October compared to 2.1% in September. This leaves real earnings at -0.7% y/y as wages continue to struggle to compensate for particularly food price surges earlier this year. Q3 GDP growth was revised lower to -0.6% on lower investments and exports. This is considered a temporary setback following several strong quarters, though, and it is not enough to derail a December Bank of Japan-hike. Private spending edged 0.2% higher, reflecting continuous recovering consumer sentiment since the spring.

In Southeast Asia, Thailand launched air strikes on Cambodia, marking the collapse of the Trump-brokered peace deal. Cambodia accused Thailand of the attacks, while Malaysia called for restraint as tensions over historic border disputes escalate.

What happened over the weekend

In the euro area, wage growth in Q3 rose against expectations, with compensation per employee rising to 4.0% y/y from 3.8% y/y in Q2. Compared to the ECB staff projections from September, which estimated Q3 wage growth at 3.2% y/y, the high print is a hawkish surprise for the ECB. With headline inflation averaging 2.1%, consumers experienced significant real wage gains, which is supportive for consumption. While inflation is expected below 2% next year due to temporary factors like energy prices and a stronger euro, strong wage growth indicates persistent domestic price pressures.

GDP growth in Q3 was revised up to 0.3% q/q from 0.2% q/q, driven by rounding adjustments. Private consumption contributed positively but slowed to 0.2% q/q from 0.3% q/q in Q2, reflecting cautious consumer behaviour despite solid real income gains of nearly 2% y/y. Apart from consumption, investments and government consumption were the main growth drivers, while net exports weighed negatively. Read more in Euro Area Macro Monitor – Southern Europe outshines in growth and public finances, 8 December.

In the US, the delayed September PCE inflation landed close to expectations. Core services inflation momentum cooled slightly at 0.2% m/m SA (cons: 0.2%, prior: 0.1981). At the same time, December's flash consumer confidence index from the University of Michigan revealed a decline in consumers' inflation expectations, with 1-year expectations falling to 4.1% (prior: 4.5%) and 5-year expectations dropping to 3.2% (prior: 3.4%), likely reflecting lower gasoline prices. While no major surprises, this on the margin supports the Fed's rate cut anticipated this week.

Also in the US, President Trump unveiled his National Security Strategy, emphasising his 'America First' vision. Key priorities include reinforcing US dominance in the Western Hemisphere via the revived Monroe Doctrine, countering China's influence in Latin America, and deterring conflict in the Indo-Pacific through military strength. The strategy also questions Europe's reliability as an ally, calling on NATO members to assume greater defence responsibilities. Notably, the Kremlin welcomed the strategy, stating its adjustments align with Russia's own global perspective.

In the Russia-Ukraine war, US Special Envoy Keith Kellogg stated that efforts to reach a breakthrough are "really close", with key issues including the Donbas region and Zaporizhzhia nuclear plant. However, the Kremlin has called for radical changes to US proposals, underscoring ongoing challenges in reaching a resolution. Today, Zelensky meets European leaders to discuss next steps, including securing meaningful guarantees.

In Japan-China relations, tensions escalated as Japanese aircraft were targeted by radar from Chinese fighter jets near Okinawa in two incidents Tokyo called "dangerous". PM Takaichi condemned the actions and lodged a protest with Beijing, while Japan vowed to respond calmly to maintain regional stability. The incidents highlight strained ties amid disputes over Taiwan and broader regional security challenges.

Equities: Equities slowed on Friday following strong gains earlier in the week. US and European indices were little changed on Friday but ended the week almost 1% higher. Nordic markets outperformed, with Stockholm and Helsinki locking in almost 2% for the week. The explanation is straightforward: Nordic equities lagged in the initial recovery. Asian markets are continuing higher this morning, while US and European futures are somewhat indecisive.

Although markets appeared calm on the surface on Friday, we note a clear risk-on rotation beneath it, with cyclical sectors rising roughly 1%, financed by declines in defensives. For the week as a whole, global cyclicals outperformed defensives by 2.5 p.p., the strongest relative performance since the earnings season.

FI and FX: Last week ended with slightly higher yields, both in Europe (2bp) and the US (4bp). We start the week at unchanged levels compared to Friday in US-treasuries. EURUSD is hovering around 1.165 and USDJPY at 155.2 as markets will increasingly focus on the widely expected Fed rate cut on Wednesday where markets price -23bp.

Source: Danske Bank

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Gerik

Economic

Frontier Markets Emerge as 2025’s Top Performers Amid Economic Recalibration

In a year marked by geopolitical volatility and diverging monetary policies across developed economies, frontier markets have carved out a space of surprising resilience and exceptional performance. The MSCI Frontier Markets Index surged 43% in U.S. dollar terms the strongest annual performance since 2005 while the FTSE Frontier Emerging Markets Government Bond Index posted a 12% gain, also on track for a record. These returns reflect both capital appreciation and high income components, signaling growing investor confidence in economies once thought too risky or unstable for serious allocations.

The renewed optimism is anchored in improved macroeconomic fundamentals, particularly in nations that have recently exited sovereign debt crises. Countries like Sri Lanka, Ecuador, and Ghana, which were previously undergoing painful restructuring, have managed to stabilize their finances, re-engage with the global debt markets, and reassure investors through more disciplined fiscal management. The shift from skepticism to strategic allocation suggests a causal relationship between policy reform and capital inflows.

Asia Frontier Capital, for example, has increased equity exposure in Sri Lanka and Bangladesh. At the same time, fixed-income managers such as Federated Hermes and Aberdeen are betting on sovereign debt from Nigeria, Pakistan, and Argentina. Federated Hermes in particular notes that frontier bonds offer both yield and price growth potential, making them attractive for total return portfolios in 2026.

Less Correlation, More Diversification: Frontier Assets as Portfolio Buffers

One of the standout features drawing institutional investors to frontier markets is their limited correlation with broader global risk assets. This idiosyncratic nature has proven useful in the current market environment where traditional safe havens like developed-market bonds have shown increased volatility. Portfolio managers like Daniel Wood from William Blair describe frontier markets as one of their “highest convictions,” highlighting countries like Uzbekistan and Kazakhstan for their diversification value. This reflects a strategic allocation motive rather than a short-term trading play.

While 2025 has been a banner year for returns, not all observers expect the same pace in 2026. Some caution is warranted as yield premiums on frontier debt such as those from Ivory Coast have compressed substantially, reducing the potential upside for new entrants. Liquidity constraints and political instability also remain structural risks that can quickly reverse investor sentiment.

Nevertheless, the appetite for local-currency bonds continues to build. Aberdeen’s $930 million frontier bond fund plans to increase exposure to Uganda and Kazakhstan’s domestic debt markets, banking on favorable macroeconomic trends and more stable exchange rates. This indicates confidence in local monetary authorities and the potential for real yield gains, assuming inflation remains under control.

Macroeconomic Outlook: Watching the Central Banks and Inflation Prints

Looking forward, monetary policy decisions and inflation data from key emerging economies will be closely monitored. The U.S. Federal Reserve is widely expected to cut interest rates, which could further enhance capital flows into higher-yielding frontier assets. Other central bank decisions from Brazil, the Philippines, and Turkey will also shape risk sentiment across the developing world.

Simultaneously, inflation reports from China, Argentina, and India, as well as trade and industrial output data from countries like Mexico, Taiwan, and Malaysia, will offer clues on demand conditions and supply chain recovery factors that can indirectly affect frontier market exports and investor flows.

The remarkable rally of frontier markets in 2025 reflects a confluence of structural improvements, investor search for yield, and a relative insulation from global trade and geopolitical tensions. As reforms mature and capital markets deepen, the frontier asset class is evolving from a speculative fringe to a credible diversifier in global portfolios. While risks remain, particularly in liquidity and governance, the core narrative for 2026 is built on stability, reform, and momentum elements that suggest continued investor interest in this dynamic segment of the global economy.