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An earlier version of this article incorrectly stated the length of time between 10-year yields topping 5%. The article has been corrected.
Treasury yields ended mostly higher Friday but finished 2023 not far from where they started, after a wild year that saw the 10-year rate hit a 16-year high above 5% before retreating into year-end as investors penciled in expectations for Federal Reserve interest-rate cuts next year.
Trading was light Friday, capping a holiday-shortened week, with industry group Sifma recommending U.S. bond markets close an hour early at 2 p.m. Eastern time. Financial markets in the U.S. and much of the world will be closed Monday for New Year’s Day.
What’s happening
-
The yield on the 2-year Treasury note
BX:TMUBMUSD02Y
fell 3.3 basis points to 4.248%. Yields and debt prices move opposite each other. -
The 10-year Treasury note yield
BX:TMUBMUSD10Y
edged up 1.1 basis points to 3.86%. -
The yield on the 30-year Treasury bond
BX:TMUBMUSD30Y
rose 3.2 basis points to 4.02%.
Market drivers
For the year, the yield on the policy-sensitive 2-year Treasury fell 15.1 basis points, its first yearly decline since 2020, according to Dow Jones Market Data. The 10-year yield rose just 3.4 basis points and the 30-year yield advanced 8.6 basis points for a third straight yearly rise.
Treasury yields surged in 2022, making for the worst year for bonds on record, by some measures, as the Fed aggressively jacked up interest rates in its effort to bring down inflation. Yields rose sharply again in 2023 as the Fed communicated what investors described as a “higher for longer” rate environment as it slowed and eventually paused rate hikes.
In October, the 10-year yield pressed above 5% for the first time since 2007, but it has since retreated sharply as the Fed signaled not only that rate hikes were complete but that cuts were expected next year. Market participants, however, are pricing in a much more aggressive series of cuts, beginning in the first quarter.
The drop in yields has helped fuel a year-end rally for stocks, analysts say, with the Dow Jones Industrial Average
DJIA
notching another record close on Thursday, while the S&P 500
SPX
lingered just below its record finish set on Jan. 3, 2022, up more than 24% for the year.
Stock Market Today: S&P 500 record remains elusive in final trading day of 2023
Heading into 2024, the path of least resistance for Treasurys is higher prices and lower yields, “although the decline in yields won’t be the boost for stocks in 2024 as it was in 2023, because if it keeps going and we see the 10-year yield break through support at 3.75% and keep dropping towards 3.00%, investors will interpret that as an economic warning sign now that the Fed pivot has already occurred,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.
