(Bloomberg) -- Global bonds are soaring at the fastest pace since the 2008 financial crisis. 

A Bloomberg gauge of global sovereign and corporate debt has returned 4.9% in November, heading for the biggest monthly gain since it surged 6.2% in the depths of the recession in December 2008.

November’s rally is being driven by increasing speculation the Federal Reserve and its global peers have largely finished hiking interest rates and will start cutting next year. Markets price a full percentage point of easing in the US next year, with the cycle starting in June.

Fed Governor Christopher Waller helped bolster rate-cut bets on Tuesday, when he said the current level of policy looks well positioned to slow the economy and bring down inflation. Some investors, including billionaire Bill Ackman, say the easing cycle will start even earlier than traders anticipate.

“Waller has been a hawkish tilting member, so for him to sound dovish has been significant,” said James Wilson, a senior portfolio manager at Jamieson Coote Bonds Pty in Melbourne. “It sounds like the Fed is all but done in their hiking cycle.”

Treasuries extended this month’s gains Wednesday. US 2- and 10-year yields both slid as much as seven basis points to 4.66% and 4.25% respectively. Australian bonds surged, sending 10-year yields tumbling 14 basis points, after weaker-than-expected local inflation data spurred traders to start betting policymakers are done hiking. 

In Europe, German 10-year yields fell to 2.42%, the lowest since July, after regional inflation figures pointed to a drop in the national numbers which will be published later Wednesday. Similar-dated UK yields dropped for a third day to a one-week low at 4.12%.

Traders also added to rate-cut bets by the European Central Bank, pricing a full percentage point of easing next year with the first move in June. At the end of last week, swaps implied about 80 basis points of reductions.

For some, markets are getting ahead of themselves in pricing such magnitude of cuts. Justin Onuekwusi, chief investment officer at St. James’s Place Plc, said the ECB has been very hawkish on inflation and will likely start easing just toward the end of next year.

“It does feel like the market is being a bit complacent,” said Onuekwusi. “Central banks will cut rates, that’s clear, but we don’t think they will move into easing as early as the market thinks.”

US policy makers in their most recent forecasts in September anticipated hiking rates once more this year — which they haven’t done so far — and cutting rates by half a percentage point in 2024. They will update those forecasts at their Dec. 12-13 meeting.

Volatile Year

The current rally is just the latest turnaround in a volatile year for bonds. The securities powered ahead in January before whipsawing over the next six months, and then starting a three-month slide from August. The Bloomberg Global Aggregate Total Return index was down as much as 3.8% for the year by the time it bottomed in mid-October. The gauge is now up 1.4% for 2023.

“The Fed is providing parameters for the potential of looser policy,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities in New York. 

The last month that saw a stronger rally than the current one was December 2008 when the Fed cut rates to the zero bound and pledged to boost lending to the financial sector following the collapse of Lehman Brothers Holdings Inc. Bloomberg’s global debt index jumped 6.2% that month.

A weekly JPMorgan Chase & Co.’s Treasury client survey found that the most active investors in the market are the most bullish they’ve been since the bank initiated the poll in 1991.

The current dovish shift in central-bank expectations has been a boon for corporate bonds. Spreads on investment-grade global company debt are hovering around the lowest levels since April 2022, according to a Bloomberg index. They have narrowed over the past month as investors rushed to snap up the securities amid increased optimism about a soft landing for the US economy.

The average yield on corporate bonds retreated to about 5.3% this week after climbing to almost 6% in October, the highest since 2009, data compiled by Bloomberg show.

--With assistance from Finbarr Flynn, Elizabeth Stanton, Edward Bolingbroke, Sujata Rao, James Hirai and Aline Oyamada.

(Updates with rates pricing, ECB context, investor comment and European bond moves starting in third paragraph.)

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