Monday, March 4, 2024

Treasury yields tick higher as investors prepare for the new year

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U.S. Treasury yields were higher on Friday as investor attention remained focused on the path ahead for the economy and monetary policy.

At 4:11 a.m. ET, the yield on the 10-year Treasury was up over two basis points to 3.8753%. The 2-year Treasury yield was last around one basis point higher at 4.2911%.

Yields and prices move in opposite directions. One basis point equals 0.01%.

As investors look ahead to the outlook for 2024, questions remain as to when and how often the U.S. Federal Reserve will cut interest rates.

The central bank said earlier this month that it expects to cut rates three times next year, however some investors are hoping for further reductions. Markets are broadly pricing in the first rate cut to take place in March 2024, according to CME Group’s FedWatch tool.

Uncertainty has also continued about the state of the U.S. economy and whether the Fed will achieve a soft landing and avoid a recession even as interest rates remain elevated.

“We … look for U.S. growth to fall to an annualised rate of less than 1% in H1 2024,” Berenberg Chief Economist Holger Schmieding said in a note Friday. “Nevertheless, the Fed remains on track to pull off the usually elusive feat of a soft landing in 2024. The easing of underlying inflation has encouraged bond and equity markets to play the Fed pivot theme.”

Schmieding expects the first Fed rate cut in May.

U.S. bond markets will close early on Friday and remain closed on Monday in celebration of the new year.

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