(Bloomberg) -- Treasuries began 2025 with a measured rally that was soon overtaken by signs of economic resilience including low jobless claims, heavy corporate bond sales and rising oil prices.
Yields across maturities reached session lows as US trading began. But by late in New York, yields were narrowly mixed across maturities, following a year in which support from three Federal Reserve interest-rate cuts was offset by indications that economic strength may forestall additional moves.
Catalysts included an unexpected drop in new jobless claims to an eight-month low, a more-than-2% surge in the price of crude oil to the highest level since October and 10 corporate bond sellers lining up offerings for the first session of the year.
“The two-year note aside, we expect the rest of the Treasury curve to remain above 4% in 2025,” said George Goncalves, head of US macro strategy at MUFG Securities Americas Inc. “A hawkish Fed, uncertainty around fiscal policy, and generally more supply should keep 10-year yields elevated in the year ahead.”
Risks to the market next week include crucial January employment data and auctions of three-, 10- and 30-year debt. The Treasury Department announced that each of those auctions would be held a day earlier than normal, starting Monday. They’ll conclude before the Jan. 9 National Day of Mourning in honor of former President Carter.
The Treasury market eked out a modest gain in 2024 with support from Fed interest-rate cuts totaling a percentage point. Swap contracts price in less than a half point of easing this year, compared with expectations for at least twice as much that prevailed several months earlier. The reassessment has pushed longer-term Treasury yields higher.
Wall Street strategists generally favor short-term Treasuries over longer-dated tenors, anticipating that President-elect Donald Trump’s policies may lead to higher inflation and wider federal deficits.
Most Treasury yields climbed in 2024, with only the two-year tenor declining, and by less than a basis point. Five- to 30-year yields rose by at least half a percentage point, causing price erosion that was offset by higher coupon income than in previous years.
The yield curve steepened as a result, with the 10-year exceeding the two-year, and the 30-year to topping the 5-year by more than half a percentage point, both for the first time since 2022.
(Updates prices in second paragraph)
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