Treasury yields finished mostly higher on Wednesday, with 10- and 30-year rates at their highest levels in at least six weeks, after data showed U.S. businesses experienced a strong upturn in activity at the start of the year.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 2.7 basis points to 4.376% after factoring in new-issue levels. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
jumped 3.7 basis points to 4.178%, from 4.141% on Tuesday. Wednesday’s level is the highest since Dec. 12, based on 3 p.m. Eastern time figures from Dow Jones Market Data. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
rose 3.6 basis points to 4.413%, from 4.377% on Tuesday. Wednesday’s level is the highest since Dec. 4.
What drove markets
In data released on Wednesday, the S&P flash U.S. services and manufacturing PMI reports both jumped in January. The services reading of business activity rose to a seven-month high of 52.9, from 51.4 in December, while the manufacturing gauge of output climbed to a 15-month high of 50.3, from 47.9 previously.
U.S. economic strength had traders lowering their expectations for a quarter-point interest-rate cut from the Federal Reserve in March. Markets priced in a 39.6% chance of a 25-basis-point rate cut by March, down from 46.2% a day ago, according to the CME FedWatch Tool. The central bank is mostly expected to take its fed-funds rate target down to 4%-4.25% or 3.75%-4% by December, via five or six quarter-point rate cuts.
Treasury’s $61 billion auction of 5-year notes came in weak, with dealers taking an above-average 20.4% and bidding by non-dealers coming in at a below-average 79.6%, according to strategist Vail Hartman of BMO Capital Markets.
The prospect for some volatility in yields ramps up on Thursday with the release of weekly initial jobless claims, a preliminary reading of fourth-quarter gross domestic product and December’s durable-goods orders. On Friday, the December personal-consumption expenditures (PCE) index, the Fed’s favored inflation gauge, will be published.
What strategists are saying
“From a monetary-policy perspective, the first month of 2024 is far more about waiting to see, rather than pressing forward in either direction,” BMO Capital Markets strategists Ian Lyngen and Ben Jeffery wrote in a note. “Let us not forget the [Federal Open Market Committee’s] rate decision next week is poised to reinforce the wait-and-see stance.”
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