US yields dip slightly to open final week of year

Dec 26 – Benchmark US 10-year Treasury yields on Tuesday dipped slightly to open the final week of 2023.

The yield on 10-year Treasury notes was down 0.9 basis points to 3.899%, while the yield on the 30-year Treasury bond was down 0.6 basis points to 4.054%.

Market movement in the last week of the year is typically quiet, as many traders take holidays to cap off the year. US markets were closed Monday due to the Christmas holiday.

The move down in longer-dated Treasury yields comes after the previous week’s economic data pointed to weakening inflation.

Markets are now pricing in interest rate cuts by the US Federal Reserve as early as March next year. Traders see as much as 152 basis points in rate cuts by the end of 2024.

New home price data on Tuesday served as a further sign of encouragement. Home prices rose 4.8% in October from the prior year, according to S&P CoreLogic Case-Shiller’s national home price index, marking the largest annual gain in 2023.

A 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 -45.5 basis points.

“The yield curve is flattening,” said Tom di Galoma, managing director and co-head of global rates trading at brokerage BTIG.

“It looks like the Fed will be cutting rates in 2024. My estimate is for that to happen by mid-2024,” he said.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, lost much of its previous gains on the day following strong results of Tuesday’s USD 57 billion Treasury auction, which saw demand nearly three times the amount sought. The two-year yield was last up 1.2 basis points at 4.349%

December 26 Tuesday 1:40PM New York / 1840 GMT

(Reporting by Matt Tracy; Editing by Chizu Nomiyama and Chris Reese)