U.S. Treasury yields fell back on Monday in one of the final trading days of the year. The yield on the 10-year Treasury was down by about 8 basis points at 4.537%, trading just below multimonth highs recorded last week. The 2-year Treasury yield was last trading at 4.25% after falling more than 7 basis points.
Even with Monday’s declines, the 10-year Treasury yield is still up sharply in the fourth quarter, rising from 3.8% at the start of October. The gains have come as inflation and employment data have both held firm in recent months, leading investors to dial back expectations for Federal Reserve rate cuts. The Fed indicated that fewer interest rate cuts were on the horizon when it met earlier this month.
Long-term interest rates have risen in recent months, despite the Fed’s cuts, as traders dial back expectations for further central bank action next year. “We believe the Fed rate-cutting cycle is near its end, as we expect only one additional rate cut next year,” said Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute.
Economic data released Monday was mixed. November’s pending home sales data rose to the highest level in a year, but the Chicago purchasing managers’ index came in at 36.9, below the 42.2 projected by economists. Data released last week showed that weekly initial jobless claims for the week ending Dec. 21 fell slightly and came in below expectations, while continuing claims for the week ending Dec. 14 jumped to the highest level since November 2021.
Bond markets will close early Tuesday and remain closed Wednesday as New Year’s Eve and New Year’s Day are observed.