US Treasury yields offer attractive returns again! The 30-year Treasury bond yield hits a new high in nearly 6 months, and investors are flocking in.

On Monday, the yield on the 30-year US Treasury bond reached its highest level in nearly six months, helping to boost the bond market as investors assess the potential impact of President-elect Trump on the economy and Federal Reserve policy. Data shows that the yield on this longest-term US Treasury bond briefly climbed 6 basis points to 4.68%, the highest level since late May. The outflows driving the bond market lower include large futures trades, while the expected sale of new corporate bonds is expected to bring supportive hedging flows. This price movement echoes what happened last Friday when a series of strong economic data cast doubt on whether the Federal Reserve will cut interest rates again next month, temporarily pushing the yield on the 10-year US Treasury bond to 4.5%. Not long after, large trades of 10-year US Treasury bond futures indicated that this level was attractive to at least one trader. Ed Al Hussainy, a strategist at Columbia Threadneedle, said, "With yields starting so high, it gives you more cushion for errors." On Monday, nine companies issued new high-grade corporate bonds, kicking off the final big week of credit supply before December, which could lead to hedging-related flows in the US Treasury and interest rate swap markets. Four of the issuances included 30-year bonds. Moreover, the uncertainty surrounding Trump's picks for Treasury Secretary has put pressure on the market. According to sources, Trump's transition team is considering appointing former Fed official Kevin Warsh as Treasury Secretary and hedge fund manager Scott Bessent as White House National Economic Council director. For most of the past two months, bonds have been falling as stronger-than-expected economic data has subdued expectations of Fed rate cuts by traders. Since the election on November 5, selling has largely continued, as Trump's victory heightened concerns about how his promises to raise tariffs, lower taxes, and ease regulations would affect interest rates. As of last Friday's close, Bloomberg's US Treasury Yield Index has seen its year-to-date return drop from a peak of 4.6% on September 17 to around 0.7%, the day before the Fed cut borrowing costs for the first time since 2020. Michael Contopoulos, fixed income chief at Richard Bernstein Advisors LLC, said, "The market broadly acknowledges that economic growth is strong, inflation is not fully subdued, budget deficits could widen, and there's hardly any reason for long bonds to not fall." Interest rate swaps suggest that traders believe it is equally likely that the Fed will either keep rates unchanged or cut rates by 25 basis points at its policy meeting ending on December 18. Investors expect the Fed's key borrowing cost to fall to around 3.8% by the end of next year, about 75 basis points lower than current levels. Chairman Powell said last week that the Fed is not "eager" to lower rates. Economists at Bank of America predicted last Friday that the Fed would only cut rates by 75 basis points more to end its 3.875% easing cycle in June next year. Previously, economists, led by Aditya Bhave, called for a total of 150 basis points in rate cuts. Bhave said he and his team revised their Fed forecasts in part over concerns about Trump's policy mix potentially pushing up inflation. For strategists at JPMorgan, the yield on short-term US Treasury bonds has climbed to an attractive level. Last Friday, strategist Jay Barry suggested their clients to go long on two-year Treasury bonds, saying that as long as the Fed does not raise rates further, the risk of further selling in short-term bonds will be contained.