The Bond Rally is Stalling as Stocks Waver

In a session truncated due to the Thanksgiving holiday, Treasury bonds experienced pressure as the robust rally in global bonds this month displayed signs of a slowdown. The ten-year U.S. yields approached the 4.5% mark. Concurrently, the S&P 500 exhibited fluctuations, heading toward its fourth consecutive week of gains. Trading concluded at 1 p.m. New York time for stocks, with the Treasury cash market recommended to close at 2 p.m.

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During this thin trading session, Treasuries mirrored a decline in European bonds driven by concerns about increasing supply. Germany, for the fourth consecutive year, will suspend the constitutional limit on net new borrowing. Chancellor Olaf Scholz's government undertook a radical budget overhaul following a recent ruling from the nation's top court.

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Andrew Brenner at NatAlliance Securities noted, "In this early close Black Friday, we open to much higher Treasury yields because of what happened yesterday in Germany. A court ruling is causing Germany to suspend their debt ceiling, which has led 10-year German Bunds to rise. Other European rates followed, and so have U.S. Treasuries."

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In economic developments, a survey from S&P Global revealed a decline in employment at U.S. service providers and manufacturers in November, marking the first such decline since mid-2020. This downturn is attributed to tepid demand and elevated costs.

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Bank of America Corp.'s Michael Hartnett reported that investors are rushing into equities at the fastest pace in almost two years, indicating growing confidence in the expectation of peak interest rates. Global stock funds witnessed inflows of approximately $40 billion in the two weeks through Nov. 21, the highest since February 2022, according to EPFR Global data. Despite this, cash funds continue to lead with additions of nearly $1.2 trillion in 2023, surpassing the $143 billion inflow into equities, while bond funds generally experienced outflows.

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Looking ahead to next week's earnings reports, Zscaler Inc. and Crowdstrike Holdings Inc. will shed light on how businesses are prioritizing cybersecurity in the wake of recent high-profile corporate hacks. Salesforce Inc. and Dell Technologies Inc. are expected to reveal slower sales growth, reflecting a tightening of overall corporate IT expenditure.

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In other market developments, oil prices maintained a decline following the OPEC+ alliance's decision to postpone a critical meeting amid a dispute over output quotas. This has cast uncertainty over the group's production policy for the upcoming year.

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