Treasury Yields Rise as Investors Bet on Slowing Inflation

Treasury yields experienced a rebound on Thursday, following a decline in long-dated rates to their lowest point in approximately five months. This trend comes as investors continue to place their bets on slowing inflation. The decline in rates was further extended after the market effortlessly absorbed the sale of 5-year Treasury notes on Wednesday.

Yield Movements

• The yield on the 2-year Treasury note (BX:TMUBMUSD02Y) increased by 2.5 basis points to reach 4.255%. This follows Wednesday’s session, where the yield fell to its lowest level since May. It’s important to note that yields and debt prices move inversely.
• The 10-year Treasury note yield (BX:TMUBMUSD10Y) rose 2.9 basis points to 3.816%.
• Meanwhile, the yield on the 30-year Treasury bond (BX:TMUBMUSD30Y) saw a 2.7 basis point increase, reaching 3.973%. Both the 10-year note and the 30-year bond witnessed a drop in yields on Wednesday, reaching their lowest levels since July.

Factors Influencing the Market

With the Christmas and New Year’s Day holidays falling within this week, trading activity has been anticipated to remain thin. Additionally, U.S. bond markets are scheduled to close early on Friday, while most markets in the U.S. and around the world will be closed on Monday for the New Year’s Day holiday.

Investors are currently expecting a series of interest rate cuts by the Federal Reserve in 2024. Fed-funds futures traders have priced in an approximately 87% chance that the Fed will implement a rate cut by its March meeting, according to the CME FedWatch tool.

Concerns about the market’s ability to absorb an increasing supply of Treasury notes were somewhat alleviated following a successful sale of $58 billion in 5-year notes on Wednesday. This follows a previous sale of 2-year notes the day before.

According to Ipek Ozkardeskaya, senior analyst at Swissquote Bank, investors have shown significant interest in the U.S. 5-year paper, as they anticipate further declines in yields once the Fed begins reducing rates. Ozkardeskaya commented on the high demand for the current yields, as investors strive to secure favorable deals.

Weekly data on jobless benefit claims is expected to be released at 8:30 a.m. Eastern Time.