U.S. Treasury yields rose to their highest levels of December on Tuesday as investors returned from the holiday weekend and awaited further clues to the outlook for the economy heading into 2023.
What yields are doing
- The yield on the 2-year Treasury note TMUBMUSD02Y, 4.404% rose 8.7 basis points to 4.408% as of 3 p.m. Eastern, ending the New York session at its highest since Nov. 29, according to Dow Jones Market Data. Yields and debt prices move opposite each other.
- The 10-year Treasury note TMUBMUSD10Y, 3.846% yielded 3.857%, up 11.1 basis points, to its highest since Nov. 14.
- The 30-year Treasury bond TMUBMUSD30Y, 3.930% yield rose 12 basis points to 3.941%, for its highest since Nov. 15.
Market drivers
Investors were returning from a three-day weekend for the Christmas holiday.
U.S. bond trading is due to close an hour early this coming Friday and U.S. markets will be closed Jan. 2 in observance of New Year’s Day.
The 10-year Treasury yield was up from 1.5% at the start of the year as the Federal Reserve embarked on an aggressive battle against inflation, but yields have retreated from the highs seen in October on signs of inflation peaking.
Trade was expected to be choppy amid thin, holiday trading conditions.
The U.S. trade deficit in goods narrowed 15.6% to $ 83.3 billion in November, according to the Commerce Department’s advanced estimate released Tuesday. In October, the deficit widened to $ 98.8 billion from $ 92.6 billion in the prior month. Economists polled by Econoday were looking for the deficit to narrow only to a $ 97 billion in November.
The U.S. S&P CoreLogic Case-Shiller 20-city house price index fell 0.5% in October, its fourth monthly decline. Year-over-year prices rose 8.6%, slowing from 10.4% in the previous month. A broader measure of home prices, the national index, fell a seasonally adjusted 0.3% in October from September.
Data on Friday showed the personal-consumption expenditures index rose just 0.1% in November, marking the fifth month in a row in which inflation eased after peaking at a 40-year high over the summer. The yearly rate of inflation, meanwhile, slowed to 5.5% in November from 6.1% in the prior month, based on the personal-consumption expenditures index. That’s the smallest increase since October 2021.
Federal Reserve policy makers view the PCE index as the best measure of inflation, particularly the core gauge that strips out volatile food and energy costs. The core index rose 0.2% last month, matching Wall Street’s forecast. Core inflation in the past 12 months relaxed to 4.7% from 5%. The core October reading was revised up to a 0.3% monthly rise from 0.2%.
Investors fear aggressive interest rate rises by the Fed and other central banks could tip the economy into recession in 2023.
What analysts say
“Markets remain unconvinced by the Fed’s hawkish outlook following the December rate hike, with traders viewing the future Fed path as particularly uncertain and data-dependent, which will cause data releases to be more heavily scrutinized ahead of the FOMC’s next decision on Feb. 1,” wrote analysts at Oxford Economics, referring to the Fed’s policy-setting Federal Open Market Committee.