• The U.S. Treasury has seen a significant rally, impacting global bonds and reversing some 'Trump trades'.
• The rally is supported by U.S. inflation updates and strong demand during a week of heavy debt sales.
• Long-term inflation expectations have slipped below 2.3% this week, with crude prices ebbing on the tentative ceasefire in the Middle East.
• The U.S. Treasury rally, global economic outlook, and performance of various sectors are interconnected, with the incoming U.S. administration's decisions having a significant impact.

The U.S. Treasury has experienced a significant rally in the aftermath of the U.S. elections, countering fiscal anxieties and impacting global bonds. This rally has been attributed to several factors, including the holiday week, month-end position squaring, and the nomination of Wall Street money manager Scott Bessent as Treasury Secretary by President-elect Donald Trump. This move has partly reversed one of the prevailing 'Trump trades' and has dragged the lofty dollar down with it.

The rally has been supported by well-behaved U.S. inflation updates and strong demand during a heavy week of debt sales. However, Trump's early trade tariff threats may have darkened the global growth outlook. In Europe, nerves about France's tense budget negotiations appear to have eased somewhat overnight.

The drop in borrowing rates may need the new month to get underway next week, with U.S. stock and bond markets open only for half a day on Friday after Thanksgiving. The moves have been sizeable - with 10-year yields retreating to their lowest in a month to 4.20% and 30-year long bond yields at their lowest in six weeks.

Global Market Reactions and Economic Indicators

Long-term inflation expectations derived from 10-year inflation protected Treasury securities have slipped below 2.3% this week too, with inflation swaps also dialing back. The New York Fed's estimate of the 10-year 'term premium' - the additional compensation investors demand for holding longer-term debt to maturity - has dissipated too. It's now just 13 basis points and almost a third of post-election peaks.

Energy markets have helped, with crude prices ebbing on the tentative ceasefire between Israel and Hezbollah in Lebanon. U.S. gasoline pump prices quietly ticked down to their lowest in more than three years. However, there's also a sense that the growth picture worldwide may also be darkening and the 2-to-10 year Treasury yield curve barely clung to positive territory on Friday having dipped back negative for the first time since Oct. 10 earlier this week.

With a big week for labor market data due next week, one eye remains on the gradually cooling U.S. employment situation, and futures still price more than a 50% chance the Federal Reserve will cut another quarter point off policy rates next month.

Influence on Stocks and Future Predictions

Wall Street stock benchmarks were higher ahead of Friday's shortened session, with eyes on the retailers and price discounting amid the traditional 'Black Friday' spending spree. There were differing inflation pictures overseas, with Japan's yen capitalizing on the softer dollar by rising more than 1% on above-forecast Tokyo inflation readings. The equivalent November reading for the euro zone moved back above the European Central Bank's 2% target, but was in line with expectations.

French and German government debt yields both fell back on Friday, with the spread between the two narrowing as signs of some compromise emerged in the French budget row. French Prime Minister Michel Barnier on Thursday dropped plans to raise electricity taxes in his 2025 budget, bowing to far-right threats to bring the government down unless he eased the burden on the working classes. However, the far-right National Rally warned this concession was insufficient to avoid a no-confidence vote as early as next week.

Chinese stocks outperformed earlier amid hopes for some positive news from key business surveys released this weekend. Meanwhile, oil prices could stall in 2025 as economic weakness in China clouds the demand picture and ample global supplies outweigh support from an expected delay to a planned OPEC+ output hike, a Reuters monthly poll showed on Friday.