Wall Street ends lower as inflation fears mount

US stocks tumbled on Tuesday after a batch of upbeat economic data raised concerns that an inflation rebound could slow down the Federal Reserve’s pace of monetary policy easing.

Stocks gave up early gains after a Labor Department report showed job openings unexpectedly increased in November, while a separate report said services sector activity accelerated in December with a measure tracking input prices surging to a near two-year high.

“Markets are starting to recognize that they thought we were in the eighth inning of the inflation fight but now it’s going to be higher for longer,” said Joe Mazzola, head of trading and derivatives strategist at Charles Schwab.

Benchmark 10-year Treasury yields hit 4.699% after the data pointed to a strong economy, the highest since April 26.

“Both of those things potentially have inflationary impacts and, as a result, yields have increased,” said Mike Dickson, head of research at Horizon Investments, referring to the economic data. “That’s definitely weighing on stocks.”

Signs of continued resilience in the economy have pushed back expectations on when the central bank can deliver its first interest rate reduction this year. Traders now see the next cut more likely in June and the Fed staying on hold for the rest of 2025, according to the CME Group’s FedWatch tool.

Concerns over the impact of possible tariffs by the incoming Trump administration on consumer prices have also been on investors’ minds. “A mix of solid growth and a new wave of inflationary pressure from tariffs means the Fed will likely switch from cutting interest rates at every decision … to pausing in between rate cuts in 2025,” Bill Adams, chief economist for Comerica Bank, said in a note.

The Dow Jones Industrial Average fell 178.20 points, or 0.42%, to 42,528.36, the S&P 500 lost 66.35 points, or 1.11%, to 5,909.03 and the Nasdaq Composite lost 375.30 points, or 1.89%, to 19,489.68.

Higher yields pushed technology-sector stocks lower by 2.39%. Shares of AI bellwether Nvidia fell 6.22%.

Most of the 11 S&P 500 sectors declined, except for healthcare and energy stocks.

The main focus of the week is the key non-farm payrolls data, along with minutes from the Fed’s December meeting.

In the previous session, the S&P 500 and the Nasdaq closed short of one-week highs on uncertainty after President-elect Donald Trump denied a report that his team was exploring less aggressive tariff policies.

Tesla shares fell 4% after BofA Global Research downgraded the stock to “neutral” from “buy.”

Micron Technology rose 2.67% after Nvidia boss Jensen Huang said the chipmaker was providing memory for the AI bellwether’s GeForce RTX 50 Blackwell family of gaming chips.

Citigroup rose 1.29% on bullish coverage from Truist Securities, while Bank of America went up 1.5% after positive ratings from at least three brokerages. Some big banks are expected to report quarterly earnings in the next week.

Declining issues outnumbered advancers by a 2.14-to-1 ratio on both the NYSE and the Nasdaq.

The S&P 500 posted 9 new 52-week highs and 16 new lows while the Nasdaq Composite recorded 60 new highs and 58 new lows.

Volume on US exchanges was 20.45 billion shares, compared with the 12.52 billion average for the full session over the last 20 trading days.

Markets will be closed on Thursday for a national day of mourning to mark the death of former President Jimmy Carter.

(Reporting by Carolina Mandl in New York; Additional reporting by Johann M Cherian and Sukriti Gupta in Bengaluru; Editing by Maju Samuel and Matthew Lewis)

Spiking yields puncture risk appetite, Japan warns on yen

Investors go into Wednesday’s market trading in Asia with their appetite for risk smothered by the rise in global bond yields.

As ever, US Treasury yields are front and center for markets that are more exposed than most to dollar-denominated debt and US borrowing costs. Especially on medium- to longer-dated maturities.

The 10-year US yield is its highest in eight months, the ‘2s/10s’ curve is the steepest in nearly three years, and the 30-year yield is within 10 basis points of 5.00%. It has climbed 60 bps in a month.

Longer-dated yields are rising globally even though many central banks are lowering policy rates – Britain’s 30-year gilt yield is the highest since 1998. The US Treasury’s sale on Wednesday of USD 22 billion of 30-year bonds could have a major impact on world markets.

There are times when signs of US economic resilience lift the global outlook and risk appetite picks up, but the release of surprisingly strong US job opening figures on Tuesday was not one of them. It was a case of ‘good news is bad news’, US yields and the dollar rose, and stocks tumbled.

That’s the global backdrop for Wednesday’s trading, which is likely to set the tone in Asia given how light the local economic calendar is.

There is little sign that Japan’s yen or China’s yuan is emerging from their recent funk, and currency traders in Asia will be on heightened alert for intervention from Japan after the dollar on Tuesday rose as high as 158.40 yen.

That’s the highest since July last year and close to the psychologically significant 160.00 yen level, and comes after Japanese finance minister Katsunobu Kato on Tuesday warned against what he said is speculative, one-sided yen selling.

Traders will note that a break of the 160 per dollar level prompted yen-buying intervention from Japanese authorities last year.

The weak yen helped the Nikkei rise 2% back above 40,000 points on Tuesday but futures are pointing to a fall of as much as 1% at the open on Wednesday.

The news flow around China, meanwhile, is still on the bleak side, offering investors little incentive to start buying beaten down Chinese assets.

US President-elect Donald Trump on Tuesday doubled down on his commitment to slap hefty tariffs on goods imported from major trading partners, and figures on Tuesday showed China’s FX reserves fell by USD 64 billion in December. That was the biggest monthly fall since April 2022, and one of the steepest since the yuan slide and waves of capital flight in 2015-16

Chinese stocks are down 5% so far this year, significantly underperforming their regional and global peers. The yuan is its weakest against the dollar since September 2023, and Chinese bond yields are collapsing.

Here are key developments that could provide more direction to markets on Wednesday:

– Australia inflation (November)

– South Korea current account (November)

– Japan consumer confidence (December)

(Reporting by Jamie McGeever)

Dollar down in choppy trade on Trump tariff confusion

NEW YORK – The US dollar was lower on Monday in choppy trading after conflicting reports about how aggressive President-elect Donald Trump’s tariff plans could be when he takes office.

The dollar dropped as much as 1.07% on the session against a basket of major currencies after the Washington Post reported that Trump’s aides were exploring plans that would apply tariffs to every country – but only on sectors seen as critical to US national or economic security, easing concerns about harsher and wider levies.

The dollar then sharply pared declines after Trump denied the report in a post on his Truth Social platform.

“The reality here is that Trump’s Truth Social views are going to drive FX volatility for a while and (Monday) morning’s reaction is indicative of the underlying dynamics,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“The market consensus is that Trump’s bark will be worse than his bite, and any news that confirms that concept is fuel for rallying in risk assets and for a decline in the dollar and Treasury yields, but the reality here is that the downside risks remain and there’s no clear endpoint for that,” Schamotta added.

The dollar index, which measures the greenback against a basket of currencies, fell 0.64% to 108.26, with the euro up 0.76% at USD 1.0386. The dollar was on pace for its biggest daily percentage drop since Nov. 27 with the euro poised for its biggest daily gain since Aug. 2.

The dollar index had reached a two-year high of 109.54 last week en route to its fifth straight weekly gain, as the resilient economy, the potential for higher inflation from tariffs and a slower pace of rate cuts from the Federal Reserve have buttressed the greenback.

The Chinese yuan strengthened 0.16% against the greenback to 7.348 per dollar. The dollar reached a 26-month high against the currency last week as China is seen as one of Trump’s major tariff targets.

Also helping the dollar pare declines were comments from Fed Governor Lisa Cook, who said the Fed can afford to be cautious with any further rate cuts given an economy that is on solid footing and inflation that has been stickier than expected.

Various Fed policymakers are scheduled to speak this week, and are likely to echo recent comments from other Fed officials that there remains a need to combat the stubborn levels of inflation.

The euro, which hit its lowest level since November 2022 last week, strengthened after annual German inflation rose more than forecast in December, according to preliminary data.

“There’s a window there for potentially 2%, 3% or 4% correction in the dollar index that could unfold in the next while, but we’d need either a stronger sense that either the European economy’s doing a bit better, so we see a further pick up in European interest rates, or some further moderation in expectations regarding tariffs to drive that,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

US economic data showed new orders for US-manufactured goods fell in November while business spending on equipment appeared to have slowed in the fourth quarter.

Against the Japanese yen, the dollar firmed 0.17% to 157.53 while sterling strengthened 0.72% to USD 1.251.

Investors will gauge a string of data on the US labor market this week, culminating in Friday’s key government payrolls report.

The Canadian dollar strengthened 0.74% versus the greenback to C$ 1.43 per dollar after Canadian Prime Minister Justin Trudeau said he would step down as leader of the ruling Liberals in the coming month.

(Reporting by Chuck Mikolajczak, additional reporting by Lisa Pauline Mattackal in Bengaluru; Editing by Bernadette Baum, Will Dunham, and Emelia Sithole-Matarise)

S&P 500, Nasdaq end higher, driven by tech stocks

The S&P 500 and the Nasdaq Composite rose on Monday, boosted by a rally in semiconductor stocks and a report that suggested the incoming Trump administration could adopt a less aggressive tariff stance than expected.

According to preliminary data, the S&P 500 gained 32.96 points, or 0.56%, to end at 5,975.98 points, while the Nasdaq Composite gained 243.30 points, or 1.24%, to 19,864.98. The Dow Jones Industrial Average fell 22.40 points, or 0.05%, to 42,709.73.

Most of the 11 S&P 500 sectors ended lower, but communication services and tech stocks climbed.

“What we’re seeing is more of what happened last year, which is a rally concentrated on the largest stocks,” said Michael Green, portfolio manager at Simplify Asset Management, adding that flows from 401(k) retirement plans are helping drive stocks higher.

Chipmakers got a boost from Microsoft’s plan to invest USD 80 billion to develop artificial-intelligence-enabled data centers, as well as Foxconn’s forecast-beating fourth-quarter revenue.

Nvidia, Advanced Micro Devices, and Micron Technology rose. The Philadelphia Semiconductor index jumped.

Tech stocks rose despite benchmark 10-year Treasury yields reaching the highest since May.

US stocks had rebounded sharply on Friday after a string of losses in December and the first few sessions of January, when concerns about high valuations, rising Treasury yields, and thin liquidity saw traders pull back after a strong 2024 run.

Automakers Ford and General Motors gained after a newspaper report said President-elect Donald Trump’s incoming administration is focused on imposing tariffs on every country, but only certain sectors deemed critical to national or economic security. Trump later refuted the report.

“He did come out and say that he’s not going to water down his tariff plan, but the seed has been planted that the Trump administration’s tariff policies won’t be quite as shocking as people originally feared,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Automobile manufacturers are considered the most vulnerable to tariffs imposed on US trade partners, given their vast supply chains.

Leading to Trump’s Jan. 20 inauguration, investors are seeking insights into his policies, which are broadly seen as beneficial for corporate America as well as the US economy.

Citigroup moved higher after a bullish rating from Barclays. An index tracking banks rose. Fed Vice Chair for Supervision Michael Barr, who has sought a range of strict rules on the nation’s biggest banks, said he will resign.

In a week packed with economic data and speeches from US Federal Reserve officials, investors will look for clues on the pace of monetary policy easing this year. Later in the week, the focus will be on a monthly payrolls report.

While Trump’s proposals could boost corporate profits and energize the economy, they also risk driving up inflation. Fed Governor Lisa Cook was the latest among a number of policymakers to caution that inflation risks remain in the new year.

Markets will be shut on Thursday for a national day of mourning to mark the death of former President Jimmy Carter.

(Reporting by Sruthi Shankar, Johann M Cherian, Pranav Kashyap, and Sukriti Gupta in Bengaluru; Editing by Pooja Desai, Maju Samuel, and Rod Nickel)

Chip firms surge on hopes of strong AI-led demand

Shares of chipmakers jumped on Monday as Microsoft’s plan to invest USD 80 billion in AI-enabled data centers in fiscal 2025 spurred bets that semiconductor demand would remain strong.

Micron was the biggest gainer among semiconductor stocks with a 10.6% rise, while chip-making equipment companies like Applied Materials, Lam Research, and KLA Corp. rose between 5.1% and 5.5%.

The Philadelphia Semiconductor Index hit its highest since mid-October and was last up 3.9%. The index jumped over 19% in 2024.

The tech-heavy Nasdaq led Wall Street’s main indexes higher, while semiconductor stocks in
Europe and South Korea also surged earlier in the day.

Citigroup said Microsoft’s spending plan although in line with analysts’ estimates was a “modest positive” update as it removed the risk of a drop in capital expenditure.

“AI data centers are very chip hungry, that’s why you have people running towards the chip sector right now,” said Michael Matousek, head trader at US Global Investors.

Contract manufacturer Foxconn’s record revenue for the fourth quarter on the back of strong demand for AI servers also added to the overall euphoria in the chip sector.

Nvidia, a Foxconn customer, added 5.1%. The AI bellwether’s CEO, Jensen Huang, is set to deliver a keynote speech at the CES trade show later in the day. AI server maker Super Micro Computer jumped 10.3%.

Nvidia’s quarterly results in November signaled a slowdown in revenue growth but those worries were brushed aside by enormous demand for the company’s AI chips, which dominate the market.

(Reporting by Medha Singh and Purvi Agarwal in Bengaluru; Editing by Anil D’Silva)

Longer-dated yields rise amid supply

NEW YORK – The benchmark 10-year Treasury yield hit the highest since May on Monday while the 30-year yield posted a 14-month high before the Treasury’s auction of longer-dated debt over the next two days.

Demand was soft for the Treasury’s sale of USD 58 billion in three-year notes on Monday, leading to a high yield of 4.332%, more than a basis point above where they traded before the auction. Demand was 2.62 times the amount of debt on offer, the highest since September.

Auctions of USD 39 billion in 10-year notes will follow on Tuesday and USD 22 billion in 30-year bonds on Wednesday.

Yields briefly declined after a news report indicated that planned tariffs under President-elect Donald Trump would be less aggressive than previously feared.

Trump’s aides are exploring tariff plans that would be applied to every country but only cover certain sectors deemed critical to national or economic security, the Washington Post reported on Monday. Trump denied the report on Monday.

Trump is expected to cut taxes and business regulations, which analysts say should boost growth. Other policies including a clampdown on illegal immigration and tariffs are expected to boost inflation, which could weigh on the economy longer-term.

A number of leading economists, including advisers to past US presidents, however, said Trump’s plans may not prove as inflationary as early analysis had suggested.

Traders are unsure on exactly what policies are likely to be introduced and how they will affect US debt.

“There’s a big uncertainty of what happens when the new president is inaugurated and gets the shot at a budget reconciliation bill,” said Will Compernolle, macro strategist at FHN Financial.

“What is that going to do for implications of Treasury issuance? I think no one’s really sure what the net impacts will be, but there’s more upside risk to rates.”

Concerns over the fiscal trajectory are fueling the rise in longer-term yields, with the Treasury expected to continue to increase debt to pay for the budget deficit.

“A lot of that is coming from an impression that the new Treasury Secretary will be funding the Treasury with more focus on longer-dated stuff rather than shorter-dated stuff because Janet Yellen, secretary of the Treasury, has been really focused on bringing more T-bills and more front-end paper,” said Tom di Galoma, head of fixed income trading at Curvature Securities.

Interest rate sensitive two-year note yields were last down 0.9 basis points at 4.27%.

Benchmark 10-year yields rose 1.7 basis points to 4.612%. They earlier reached 4.644%, the highest since May 2.

Thirty-year yields increased 1.7 basis points to 4.8316%. They reached 4.861%, the highest since November 2023.

The Federal Reserve is expected to make fewer interest rate cuts this year as inflation remains above its 2% annual target.

Fed Governor Lisa Cook said on Monday the US central bank can be cautious with any further rate cuts given a solid economy and inflation proving stickier than previously expected.

Economic releases this week will include Friday’s jobs report, which is expected to show 154,000 jobs added in December.

(Reporting by Karen Brettell; Editing by Mark Potter and Richard Chang)

Trump tariff doubt swirls, JGB yields in rarified air

Risk appetite in Asia should get a lift on Tuesday, as the feel-good factor sparked the previous day by a report that US President-elect Donald Trump’s tariff agenda won’t be as aggressive as feared continues to ripple through world markets.

Trump denied the Washington Post story, but investors seem to want to believe it – European and world equities rallied on Monday, US stocks rose for a second day, and the dollar fell against developed and emerging currencies alike.

If US tariffs are broadly lower than Trump promised on the campaign trail and aimed only at “critical” sectors, then the outlook for global growth should improve and the dollar should weaken.

On the face of it, this is bullish for Asian and emerging markets. But if Trump is true to his pre-election word and ‘Truth Social’ media post on Monday, risky assets will come back under pressure.

Wall Street’s gains melted a bit as Monday’s session progressed and Trump’s denial kept Treasury yields elevated ahead of this week’s debt auctions. The 30-year yield is the highest in over a year and closing in on 5.00%.

That will give investors grounds for caution on Tuesday. In addition, political uncertainty persists in South Korea and is flaring up in Canada too following Prime Minister Justin Trudeau’s announcement on Monday that he will step down.

In Asia, developments in Japanese markets bear monitoring, with yields hitting multi-year highs after Bank of Japan Governor Kazuo Ueda signaled interest rates will be raised again, but the yen still anchored near 160.00 per dollar.

The 10-year Japanese Government Bond yield on Monday hit 1.1350%, the highest since July 2011. Japan’s finance ministry will auction 10-year bonds on Tuesday, and recently said it will raise the amount of five-year bonds to be sold early in the new fiscal year.

Japanese stocks, which last week touched their highest level since July last year, are feeling the heat from higher JGB yields. The Nikkei 225 index fell 1.5% on Monday, the biggest fall since Nov. 13.

Will Japanese stocks on Tuesday take their cue from the weak, export-friendly yen, or the multi-year peak in long-dated borrowing costs?

Investors in China will focus their attention once again on the two-year bond yield’s flirtation with 1%, the weakening exchange rate, and Beijing’s efforts to support the currency and stock markets in the face of slumping yields and persistent deflationary pressures.

The spot yuan is now through 7.33 per dollar for the first time since September 2023, getting closer to a break below 7.35 per dollar which would signal a new 17-year low.

Asia’s economic calendar on Tuesday is light. The main releases will be inflation data from the Philippines and Taiwan, and China’s latest FX reserves.

Here are key developments that could provide more direction to markets on Tuesday:

– Japan 10-year bond auction

– China FX reserves (December)

– Taiwan inflation (December)

(Reporting by Jamie McGeever; editing by Deepa Babington)

US jobs report poses first big stocks test of 2025

NEW YORK – The stock market faces its first major test of the year this week, with investors counting on the US jobs report to show a stable but not overheated economy that underpins expectations for equity gains in 2025.

Stocks wobbled at the end of December and the start of January, cooling off after a torrid run. The benchmark S&P 500 closed 2024 with a 23% rise and posted its biggest two-year gain since 1997-1998.

Prospects for a third straight standout year hinge in part on the strength of the economy, with labor market data among the most important reads into the economy’s health. The data could also help clarify the Federal Reserve’s interest rate plans after the central bank last month rattled markets by reducing its projected rate cuts for 2025.

“Investors are going to want to see confirmation that labor trends remain solid, which means the economic outlook probably remains firm,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial.

“Any kind of data that suggests things are weakening a little bit more than expected I think could create volatility,” Saglimbene said.

Investors enter the year generally upbeat about the US economy. A Natixis Investment Managers survey conducted at the end of last year found 73% of institutional investors said the US will avoid a recession in 2025.

Labor market data has been volatile in recent months following aerospace industry strikes and hurricanes. November data showed growth of 227,000 jobs that rebounded from a tepid rise in October.

The three-month average gain of 138,000 “suggests that hiring continues to slow gradually,” Capital Economics analysts said in a note.

The report for December, due out on Jan 10, is expected to show growth of 150,000 jobs with the unemployment rate at 4.2%, according to a Reuters poll of economists.

Following the prior two reports, “this is going to be probably the first clean read of what is the underlying trend in the labor market,” said Angelo Kourkafas, senior investment strategist at Edward Jones.

Investors are also wary of the jobs report revealing an overly strong economy, with a revival of inflation seen as one of the key risks to markets early in the year.

The Fed at its December meeting lifted its forecast for expected inflation in 2025, paving the way for higher interest rates than it previously forecast.

After lowering its benchmark rate at three straight meetings, the Fed is expected to pause its easing cycle when it next meets at the end of January before making further cuts of about 50 basis points over the rest of the year.

For the jobs report, the market is “looking for that Goldilocks number — neither too hot, nor too cold,” Kourkafas said.

OTHER EMPLOYMENT DATA

While the payrolls data will be the most closely followed release, the coming week brings other market-sensitive employment figures, as well as reports on factory orders and the services sector.

Despite a strong 2024, stocks were weak in December, with the S&P 500 falling 2.5%. December had only five days with more stocks in the index gaining as opposed to declining, the lowest share of such relatively positive days for any month going back to 1990, according to Bespoke Investment Group.

Following the end-of-year holiday period, “next week probably ushers in more robust volumes, which would certainly be a better indication of directionality for the market,” said Art Hogan, chief market strategist at B. Riley Wealth.

“A solid jobs report would certainly help turn things around in this market that has otherwise been pretty soft to end the year and start the new year,” Hogan said.

(Reporting by Lewis Krauskopf in New York; Editing by Nia Williams)

Global equity fund inflows drop on higher US bond yields

Demand for global equity funds shrank in the week through Jan. 1, as higher US Treasury yields led to caution and investors took profits during the year-end trading lull.

Data from LSEG Lipper showed that investors added a net USD 4.93 billion worth of global equity funds, an 86% drop in inflows compared with about USD 35.1 billion worth of net purchases in the prior week.

The MSCI World index, which made a gain of over 15% in 2024, is down 1.5% this week after investors booked some profits following last year’s surge in stock valuations.

The increase in bond yields also dampened interest in equities, as the US 10-year Treasury yield rose to 4.641% last week, reaching its highest point since May 2.

By region, European, Asian, and US equity funds garnered net purchases of USD 2.25 billion, USD 1.64 billion, and USD 490 million, respectively, though inflows decreased from the previous week in all three regions.

Sectoral equity funds experienced outflows for a fourth consecutive week, totaling USD 2.35 billion. The largest withdrawals from tech, healthcare, and industrial sectors amounted to USD 453 million, USD 375 million, and USD 346 million, respectively.

Safer money market funds remained popular for a second successive week as they attracted USD 72.99 billion, the largest weekly inflow in four weeks.

Global bond funds experienced modest inflows as investors purchased government bond funds worth a net USD 878 million. Loan participation funds also attracted USD 320 million, whereas corporate bond funds saw net outflows of USD 573 million.

In commodities, investors ditched USD 141 million worth of energy sector funds, the fourth consecutive week of selling. Gold and precious metals funds also witnessed outflows of about USD 149 million, in contrast to purchases of a net USD 1.25 billion, the previous week.

Data covering 29,579 emerging market funds indicated that investors extended withdrawals into a eighth straight week, with about USD 1.39 billion worth of net sales during the week. Bond funds also witnessed a net USD 870 million worth of outflows.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; editing by Barbara Lewis)

Yields edge higher ahead of labor market data, supply

NEW YORK – US Treasury yields held steady near recent highs on Friday, ticking upward after encouraging manufacturing news but marking time in holiday-deadened trade before key employment data and a wave of note and bond issuance next week.

Yields were down slightly before the Institute of Supply Management purchasing managers index surprised to the upside by gaining 0.9 points to 49.3, its highest reading since March, nudging ever closer to the 50 expansion/contraction reading.

The reaction was muted, with many traders stretching out their Christmas and New Year breaks, especially since Manufacturing makes up a far smaller portion of the US economy than the consumption side.

The market will be more focused on the string of labor market data coming out next week, culminating in Friday’s December employment report.

“In a quiet market like this without any huge factor in the immediate term, the market just moves to flows and the flows could be for any sort of reason, whether it’s an arbitrage or just portfolio flattening,” said Lou Brien, market strategist at DRW Trading in Chicago.

Given low unemployment and stubborn inflation, the Federal Reserve is expected to refrain from easing again this month, with traders in Fed funds futures putting the odds of it standing pat near 90% and chances of the first 25 basis-point cut of 2025 coming in March at 50/50.

The Fed reduced interest rates by a full percentage point from September to December, beginning a more accommodative monetary policy after hiking rates from zero to about 5.25% to combat runaway inflation in 2022 and 2023.

A selloff in government debt as the market repriced expectations for Federal Reserve policy in 2025 hoisted the 10-year yield above 4.64% on Dec. 26, its highest level since early May. The two-year yield is not far from its November-December levels above 4.36%, which were last seen in July’s rate decline as markets were pricing in the start of Fed easing.

There is also uncertainty over how President-elect Donald Trump’s promised tariffs, tax cuts and immigration crackdown might affect the economy and an already enormous fiscal deficit.

Republican Mike Johnson won a close vote on Friday to retain the speakership in the US House of Representatives.

The vote highlighted Republican divisions and the speaker will have a big job taking on Trump’s sweeping legislative agenda. Congress must address the nation’s debt ceiling later this year with the federal government more than USD 36 trillion in debt and many congressional Republicans are expected to demand significant spending cuts.

Another reminder of the government’s budget challenge comes with next week’s Treasury auctions of USD 119 billion of coupon securities to help fund the excess spending: USD 58 billion in three-year notes on Tuesday, USD 39 billion in 10-year notes on Wednesday and USD 22 billion of 30-year bonds on Thursday.

“The 10s are still the interesting one to watch,” Brien said. “I mean, we’re higher than we started this easing cycle at and that usually indicates some concern over the Fed’s stance versus inflation. But we have stabilized.”

The yield on benchmark US 10-year notes rose 1.4 basis points from Thursday’s late level to 4.589%. The 30-year bond yield rose 1 basis point to 4.8079%.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, went up 2 basis points to 4.268%.

The closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 31.9 basis points, slightly steeper than +31.5 bp late on Thursday.

The implied breakeven inflation rate on 10-year Treasury Inflation Protected Securities (TIPS) rose to 2.3438% from 2.3387 late on Thursday.

The five-year TIPS breakeven inflation rate was at 2.4149% compared with Thursday’s 2.4069%, suggesting that investors think annual inflation will average above the Fed’s 2% target rate for the next five years.

(Reporting by Alden Bentley in New York; Editing by Dan Wallis and Matthew Lewis)

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