Five-year Treasuries jump above 5 per cent

The Federal Reserve could raise interest rates once again, following the rate hike a few days ago, ahead of the mid-term elections in November. This would be unusual – because at the meeting preceding this election, the US central bank has historically tended to adopt a wait-and-see approach – but this is what the futures market has been pricing in since yesterday with a significant probability (rising from 50 per cent the day before to 73 per cent) the futures market has been pricing in since yesterday for the meeting on 28 October.

This is because the US economy, rather than slowing down and feeling the pinch of ever-higher interest rates, continues to perform strongly. The composite PMI index compiled by S&P Global for the United States rose from 56 in August to 58.4 in September, marking the fastest expansion since July 2021 and an acceleration in growth for the fourth consecutive month.

Growth was driven by the services sector, which recorded its strongest increase in output in over five years; however, another positive development in September was the simultaneous acceleration in manufacturing output, which reached its highest level since April 2022.

Michael Barr, a member of the Fed’s board, stated that ‘further adjustments to monetary policy will likely be necessary’ to keep inflation under control because ‘the risks to achieving our inflation target have increased’.

Against this backdrop, the dollar strengthened by 0.5 per cent globally (with the dollar index at 101 points, its highest level since June), whilst bond prices underwent a correction designed to realign yields with a ‘higher for longer’ scenario characterised by greater resilience.