The market gives up on rate cuts

The sovereign bond market has executed a brutal capitulation. Having entered the year pricing in six Federal Reserve rate cuts, fixed-income markets have erased nearly the entire projected easing cycle for 2024. Ten-year Treasury yields have surged to 4.70 per cent, dragging mortgage pricing back toward eight per cent and battering equity multiples.

The Great Erasure

The repricing has been total and unforgiving. Bond allocators who piled into duration in late 2023 on hopes of swift capital appreciation are nursing severe mark-to-market losses. With benchmark base rates remaining cemented above five per cent, the entire sovereign curve has steepened to reflect the reality that monetary policy will remain restrictive for the foreseeable future.

The total market erasure of 2024 rate cuts represents an expensive capitulation for duration bulls, confirming that sovereign yields must reflect structural inflation persistence.