Treasury yields tick higher as traders prepare to close out wild 2023
Treasury yields ticked higher Friday, on track to end 2023 not far from where they started after a wild year that saw the 10-year rate hit a 16-year high above 5% before retreating into year-end as investors penciled in expectations for Federal Reserve interest rate cuts next year.
Trading may remain light on Friday, with industry group Sifma recommending U.S. bond markets close an hour early at 2 p.m. Eastern. Financial markets in the U.S. and much of the world will be closed Monday for New Year’s Day.
What’s happening
-
The yield on the 2-year Treasury note
BX:TMUBMUSD02Y
fell 2.5 basis points to 4.287%. Yields and debt prices move opposite each other. -
The 10-year Treasury note yield
BX:TMUBMUSD10Y
was up 4.1 basis points at 3.883%. -
The yield on the 30-year Treasury bond
BX:TMUBMUSD30Y
rose 4.8 basis points to 4.037%.
Market drivers
Through Thursday, the policy-sensitive 2-year Treasury yield was down around 12 basis points for 2023, its first yearly decline since 2020, according to Dow Jones Market Data. The 10-year yield was up just 2 basis points and the 30-year yield advanced around 5 basis points for a third straight rise.
Treasury yields surged in 2022, making for the worst year for bonds on record, by some measures, as the Fed aggressively jacked up rates in its effort to bring down inflation. Yields rose sharply again in 2023 as the Fed communicated what investors described as a “higher for longer” rate environment as it slowed and eventually paused rate hikes.
The 10-year yield pressed above 5% for the first time since 2016 in October, but has since retreated sharply as the Fed signaled rate hikes were not only complete but that cuts were expected next year. Market participants, however, are pricing in a much more aggressive series of cuts, beginning in the first quarter.
The drop in yields has helped fuel a year-end rally for stocks, analysts say, with the Dow Jones Industrial Average
DJIA
notching another record close on Thursday, while the S&P 500
SPX
lingered just below its record finish set on Jan. 3, 2022, up nearly 25% for the year.
Stock Market Today: S&P 500 takes aim at record high in final trading day of 2023
Heading into 2024, the path of least resistance for Treasurys is higher and yields lower, “although the decline in yields won’t be the boost for stocks in 2024 as it was in 2023, because if it keeps going and we see the 10-year yield break through support at 3.75% and keep dropping towards 3.00%, investors will interpret that as an economic warning sign now that the Fed pivot has already occurred,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.
