US 10-Year Yield Holds Above 4.32%

The yield on the 10-year US Treasury note remained above 4.32% on Friday, marking its fourth consecutive session of increases. This sustained rise in the yield reflects a shift in investor sentiment, particularly around future Federal Reserve rate cuts.

The US 10-year yield is considered a benchmark for longer-term interest rates and an indicator of investor expectations about economic growth and inflation. A rising yield suggests that investors may expect higher inflation or stronger economic growth, leading to tighter monetary policy by the Federal Reserve.

Federal Reserve Rate Cut Expectations Adjusted

While investors have almost fully priced in a 25-basis point rate cut by the Federal Reserve at its meeting next week, expectations for additional rate cuts in 2025 have diminished. The shift in sentiment comes as investors have dialed back their expectations for further rate reductions amid stronger-than-expected economic data.

• Rate Cut Probability: Currently, markets are assigning a 96% probability that the Fed will implement a quarter-point rate cut next week, suggesting high confidence in a near-term reduction in borrowing costs.
• Outlook for 2025: Despite next week's expected cut, rate cut expectations for 2025 have been lowered as investors adjust to mixed signals from recent economic data.

Economic Data: Mixed Signals

Recent economic data has presented a mixed picture of the US economy, influencing both bond market sentiment and investor expectations for monetary policy.

• Producer Price Index (PPI): On Thursday, the headline PPI for November rose more than expected, pointing to potential inflationary pressures in the economy. However, the core PPI (excluding food and energy) aligned with forecasts, suggesting that inflation may be stabilizing in certain sectors.
• Jobless Claims: Additionally, initial jobless claims unexpectedly rose to a nearly two-month high of 242K, significantly higher than the expected 220K. This increase in claims could indicate a slight weakening in the labor market, adding to uncertainty about the sustainability of growth.

Outlook for US Bonds and Treasury Yields

The US 10-year yield is expected to remain volatile in the coming weeks as market participants react to a combination of factors:

• The Federal Reserve's monetary policy decisions and the rate cut expectation will be central in shaping bond market movements.
• Economic data releases, including further updates on inflation and employment trends, will also influence investor sentiment toward US Treasury bonds.
• While the 10-year yield has recently held above 4.32%, broader market conditions will dictate whether it remains elevated or if there is a retreat in the coming months.

Conclusion

The US 10-year Treasury yield continues to hold its ground above 4.32%, maintaining its recent gains as investors adjust expectations for Federal Reserve rate cuts in 2025. Mixed economic data, including a higher-than-expected producer price index and rising jobless claims, has influenced market sentiment. While next week's rate cut is largely priced in, the outlook for future rate cuts remains uncertain, and this will continue to affect bond market dynamics in the near term.