Overview

Treasury yields remained mostly steady to lower on Friday, reaching their summer lows after a surprising change in the Federal Reserve’s stance during its recent meeting.

Key Details

  • The yield on the 2-year Treasury (BX:TMUBMUSD02Y) dropped 1 basis point to 4.38%. On Thursday, it fell 8 basis points to 4.397%, the lowest since June 1.
  • The yield on the 10-year Treasury (BX:TMUBMUSD10Y) decreased 1 basis point to 3.91%. In Thursday’s session, the yield dropped 10.3 basis points to 3.929%, the lowest since July 26.
  • The yield on the 30-year Treasury (BX:TMUBMUSD30Y) remained stable at 4.039%. It fell 13 basis points to 4.053% on Thursday, marking the lowest level since July 31.

Market Impact

The U.S. bond market experienced a rally this week after the Federal Reserve’s mid-week meeting. During the meeting, the Fed projected interest rate cuts for 2024 and indicated the end of the rate-hike phase.

Federal Reserve Expected to Maintain Interest Rates in January

According to the CME FedWatch Tool, there is an 85.5% probability that the Federal Reserve will keep its benchmark interest rate unchanged in January. However, market expectations for a rate cut of at least 25 basis points by the March meeting have risen to 68.5%, up from 64.5% just a week ago. Traders are also anticipating the central bank to lower its fed-funds rate target to around 3.875% or even lower by the end of next December.

Positive data released on Thursday showed that the economy continues to flourish during the holiday season, with increased retail sales, a decrease in weekly jobless benefit claims, and falling import prices.

Upcoming this Friday, there will be the release of the New York Empire State manufacturing survey for December at 8:30 a.m. ET, followed by the U.S. industrial production and capacity utilization reports at 9:15 a.m. ET.

In contrast to the Federal Reserve, both the Bank of England and the European Central Bank decided to maintain their interest rates unchanged on Thursday. The heads of these institutions noted that it is premature to discuss interest rate cuts at this stage.

Nevertheless, there may be mounting pressure on the European Central Bank to cut rates in the near future, as weak purchasing managers data from Germany and France have led to a 7 basis points decline in the yield on the 10-year German bund (BX:TMBMKDE-10Y), now standing at 2.044%.

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