U.S. Treasury yields were lower on Tuesday, the final trading day of the year, but the benchmark 10-year yield is still on track to end the year solidly higher.
Shortly after 10 a.m. ET, the yield on the 10-year Treasury was down by 2 basis points at 4.527%. The 2-year Treasury yield was last down 3 basis points at 4.225%.
Yields and prices move in opposite directions and one basis point is equivalent to 0.01%.
The fall in yields on Tuesday extended Monday’s declines, which came after the 10-year Treasury yield hit a multi-month high last week after rising distinctly across the last three months of the year.
Those swings are a fitting end to a choppy year in the bond market. The 10-year Treasury yield began the year below 3.9% before jumping to 4.7% in the spring. It then retreated to below 3.7% in September before bouncing higher again.
The 10-year Treasury yield has traded in a wide range during 2024.
Conflicting economic data and changing rate outlooks have fueled those swings. The U.S. economy has proven to be stronger than many economists expected at the beginning of the year, but inflation is still above 2%. The Federal Reserve did begin cutting rates in September, but traders have now dialed back expectations of further cuts in 2025.
The rate cuts have led to lower short-term yields, but long-term yields are still higher on the year. This means that the yield curve is no longer inverted, but the moves have hurt many investors’ performance and is keeping mortgage rates elevated. The iShares Core U.S. Aggregate Bond ETF (AGG) has a total return of less than 2% this year, while many funds focused on long-term debt will finish 2024 with negative returns.
“This has been a very bad year for the bond market. And it’s been a year in fact where both bears and bulls have looked like they’ve been wrong quite a few times along the year,” Strategas head of fixed income research Tom Tzitzouris said on “Squawk Box.”
The Federal Reserve lowered its benchmark interest rate by 25 basis points earlier this month, but Fed funds futures price shows that traders expect a pause at the January meeting, according to the CME FedWatch tool. That market shows that traders think the most likely outcome for 2025 is two more rate cuts, bringing the Fed funds rate to a target range of 3.75% to 4.00%.
Bond markets will close early Tuesday and remain shut Wednesday in observance of New Year’s Day.
