Treasury yield continued to rebound in November vs. a “fair value” estimate calculated by CapitalSpectator.com. The increase marks the second straight monthly increase in the premium, which is now at the highest level since May.
The backup in the market premium over the average fair-value estimate comes at a time of increased speculation about the path ahead for inflation and uncertainty about economic policy changes that the incoming Trump administration may implement in 2025 and beyond.One theory for why the market premium in the 10-year yield is rising again after five months of declines through September: new worries about reflation risk.
If reflation is a rising risk, it’s not expected to curtail the Federal Reserve’s plans to continue cutting interest rates at the next policy meeting. Fed funds futures are pricing in a near-certainty that the central bank will cut its targetby 25 basis points next week . On the basis, the conditions don’t appear ripe in the near term for a material drop in the market’s yield premium unless incoming inflation data shows a renewed decline and/or economic growth slows.