Treasury yields dip as growth concerns linger

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Bond yields dipped on Thursday in holiday-thinned trade as New Year looms.

What’s happening
  • The yield on the 2-year Treasury

    slipped by less than 1 basis point to 4.345%. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury

    retreated 2.2 basis points to 3.862%.

  • The yield on the 30-year Treasury

    fell 2 basis points to 3.955%.

What’s driving markets

Trading is thin because of the festive holiday period, and with many investors reluctant to make fresh bolds bets given the new year is only a few days away.

However, there is softness in yields as some traders worry that Beijing’s easing of travel restrictions will help COVID-19 spread internationally and impact other economies.

“I warn my backers…not to read too much into this week’s low volume /liquidity price action,” said Stephen Innes, managing partner at SPI Asset Management.

“Many factors affect market performances during the winter holiday; least of all, institutional investors are forced to turn very transactional into quarter-end and year-end rebalancing activity,” Innes added.

There is little economic data for investors to consider in coming sessions, too. The weekly initial jobless claims report will be published at 8:30 a.m. Eastern, while on Friday the December Chicago PMI report will close out 2022.

For, now investor focus is on what 2023 will bring in relation to Federal Reserve policy as the central bank continues to battle inflation that remains more than three times its 2% target.

Markets are pricing in a 72% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.50% to 4.75% after its meeting on February 1st, according to the CME FedWatch tool. The central bank is expected to take its Fed funds rate target to 4.9% by June 2023, according to 30-day Fed Funds futures.

The U.S. Treasury will auction $35 billion of 7-year notes on Thursday.

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