US yields dip as markets brace for Fed meeting; geopolitical headlines in focus

NEW YORK – US Treasury yields edged lower on Friday, moving in narrow trading ranges, as investors consolidated positions ahead of next week’s Federal Reserve policy meeting, while keeping an eye on geopolitical developments.

Friday’s economic data on US business activity and consumer sentiment was positive overall. Treasuries, however, showed little reaction to the reports, although they did support expectations that the Fed will pause its easing cycle next Wednesday.

In afternoon trading, the benchmark US 10-year yield slipped 1.6 basis points to 4.235%, while US 30-year bond yields dipped 1.8 bps to 4.831%.

On the front end of the curve, the US two-year yield, which reflects interest rate expectations, was down 1.6 bps at 3.607%.

‘WELCOME RESPITE’

Treasury yields spiked on Tuesday after Trump threatened to impose more tariffs on European goods. But the US commander-in-chief withdrew his threat after a framework on a deal to acquire Greenland was agreed with European leaders.

The details of the deal are still being discussed, however.

“Today’s action is a welcome respite after a very volatile 20-some odd days of headlines, geopolitical intrigue, Davos (the World Economic Forum in Switzerland), and earnings,” said George Catrambone, head of fixed income Americas at DWS Group in New York.

“But the net really is that all eyes are going to quickly move to the Fed next week.”

The US central bank’s policy-setting Federal Open Market Committee is widely expected to keep its benchmark overnight interest rate steady in the 3.50%-3.75% target range at the conclusion of a two-day meeting next Wednesday.

The US rate futures market has priced in about 44 bps of easing this year, or less than two cuts of 25 bps each, according to LSEG estimates. That was about 53 bps last week.

Friday’s data underpinned the market’s view of a shallow easing cycle, analysts said. Reports showed that US business activity was steady in January.

S&P Global said its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, edged up to 52.8 this month from 52.7 in December. A reading above 50 indicates expansion in the private sector.

US consumer sentiment also improved in January, data showed, although concerns about high prices and the labor market lingered. The University of Michigan’s Surveys of Consumers said its Consumer Sentiment Index rose to a final reading of 56.4 this month, from an earlier estimate of 54.0. The index was at 52.9 in December.

However, the survey’s measure of consumer expectations for inflation over the next year slipped to 4.0%, the lowest reading since January 2025, from an earlier estimate of 4.2%. The inflation component slightly pushed Treasury yields lower, analysts said.

In other areas of the bond market, the Treasury yield curve flattened for a third straight session on Friday, as inflation concerns eased with the threat of tariffs on European goods off the table for now. The spread between two-year and 10-year yields narrowed to as much as 61.6 bps and was last at 63.6 bps, from 63.7 late on Thursday.

The curve had steepened to as much as 70.9 bps on Tuesday, the widest gap in roughly two weeks, reflecting market concerns about persistent inflation.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski, Rod Nickel)