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2- and 10-year Treasury yields slip from 2024 highs as Fed’s blackout period gets under way

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Treasury yields pulled back from some of their highest levels of the year on Monday, a day in which there was limited new information about the economy.

What happened

The yield on the 2-year Treasury
BX:TMUBMUSD02Y
fell 3 basis points to 4.376%, from 4.406% on Friday. Friday’s level was the highest since Dec. 19, based on 3 p.m. Eastern time figures from Dow Jones Market Data. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
BX:TMUBMUSD10Y
declined 5.2 basis points to 4.093%, from 4.145% last Friday. Friday’s level was the highest since Dec. 12.

The yield on the 30-year Treasury
BX:TMUBMUSD30Y
dropped 3.8 basis points to 4.315%, from 4.353% Friday afternoon.

What drove markets

Rates on 2- and 10-year Treasurys finished off their highest levels of 2024 after Monday’s only major data release showed leading indicators of the U.S. economy fell for the 21st month in a row during December.

Treasury yields had climbed to their highest levels of the year on Friday after last week’s economic reports showed that weekly initial jobless claims fell to a 16-month low in mid-January, U.S. consumer sentiment soared this month, and December retail sales jumped by more than expected. All three reports helped to support the view that investors have likely overestimated the extent to which the Federal Reserve will cut interest rates this year from a current level of between 5.25% and 5.5%.

The Fed’s traditional blackout period, which entails a period of no appearances or comments by officials in the run-up to the central bank’s Jan. 30-31 meeting in Washington, D.C., began on Saturday.

This week will feature auctions of 2-year, 5-year
BX:TMUBMUSD05Y
and 7-year
BX:TMUBMUSD07Y
Treasury notes between Tuesday and Thursday, as well as data on fourth-quarter gross domestic product and the personal-consumption expenditures inflation measure.

What analysts are saying

“Fed officials are now bound by the customary silent period until after the Jan. 31 decision,” said Will Compernolle, macroeconomic strategist at FHN Financial. “The convergence between market expectations and Fed action is typically a gradual process, and we think expectations for a cut by the end of the first quarter will quickly shift to expectations for a May rate cut,” he wrote in a note.

“Outside policy for fed funds, however, this meeting will be relevant for any updates to the Fed’s quantitative tightening and the future of the Bank Term Funding Program — two things that have been an afterthought for quite some time, but returned to investors’ attention recently after comments from [Federal Open Market Committee] participants,” Compernolle said.

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