TREASURIES-U.S. yields rise as hopes of early 2024 Fed rate cuts ebb

Credit: REUTERS/MURAD SEZER

By Herbert Lash

NEW YORK, Nov 24 (Reuters) - Treasury yields rose on Friday as concerns about an economy that might prove more resilient with inflation stickier than recently expected have dampened market speculation that the Federal Reserve might cut rates sooner than previously assumed in 2024.

U.S. business activity held steady in November, data from S&P Global showed, with its flash U.S. Composite PMI Output Index that tracks the manufacturing and services sectors unchanged at 50.7.

The benchmark 10-year Treasury note's yield was up almost 12 basis points from a two-month low of 4.363% hit on Wednesday, and the two-year's yield also rose, though it remained about five basis points below the key 5% level.

The market has been too eager to call the end of the bond bear market and the recent sell-off became overdone, said Phillip Colmar, global strategist at MRB Partners in New York.

"The durability of the U.S. and global economy warns against betting that bond yields will continue to fall," he said. "As growth conditions prove resilient and inflation stickier than perceived in the months ahead, yields are likely to face further upward pressure," Colmar said.

The yield on the benchmark 10-year note US10YT=RR rose 6.8 basis points to 4.484%, while the two-year US2YT=RR yield, which reflects interest rate expectations, rose 4.9 basis points to 4.959%.

A session shortened by the Thanksgiving holiday on Thursday skewed the view of the day's market activity, said John Luke Tyner, portfolio manager and fixed-income analyst at Aptus Capital Advisors in Fairhope, Alabama.

The bond market will close early at 2 p.m. ET (1900 GMT).

The Fed will keep rates higher for longer as bets that yields will tumble toward a 3%-3.5% neutral rate are misplaced, Tyner said. The Fed will work to keep rates above that level, he said.

Yields nosedived 10 days ago after softer-than-expected inflation data kindled market hopes that the Fed may cut rates by the first half of 2024, or earlier than expected.

Traders have trimmed their bets on how soon and deep the Fed will cut rates next year, with a full 25 basis point cut not expected until July 2024. FEDWATCH

The yield on the 30-year Treasury bond US30YT=RR was up 6.1 basis points to 4.609%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at -47.7 basis points.

The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.282%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

The U.S. dollar 5 years forward inflation-linked swap USIL5YF5Y=R, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.590%.

Nov. 24 Friday 12:07 p.m. New York/1707 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

5.2675

5.4095

-0.019

Six-month bills US6MT=RR

5.2475

5.4771

0.008

Two-year note US2YT=RR

100-17/256

4.9613

0.051

Three-year note US3YT=RR

99-216/256

4.6814

0.054

Five-year note US5YT=RR

101-156/256

4.5062

0.066

Seven-year note US7YT=RR

102-8/256

4.5294

0.067

10-year note US10YT=RR

100-32/256

4.4841

0.068

20-year bond US20YT=RR

99-56/256

4.8112

0.068

30-year bond US30YT=RR

102-72/256

4.6087

0.061

(Reporting by Herbert Lash; Editing by Mark Potter and Alexander Smith)

((herb.lash@thomsonreuters.com; 1-646-223-6019; Reuters Messaging: herb.lash.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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