U.S. Treasury yields: investors consider economic outlook

U.S. Treasury yields were higher on Thursday as investors weighed the path ahead for the economy and financial markets as the new year nears.

The yield on the 10-year Treasury added more than 6 basis points to 3.854%. The 2-year Treasury yield rose more than 4 basis points to 4.287%

Yields and prices move in opposite directions and one basis point equals 0.01%.

The Federal Reserve’s monetary policy decisions, and whether the long-anticipated recession will actually hit, remain top of mind for investors as 2024 approaches.

Following its last meeting earlier this month, the Fed noted that it expects to cut interest rates three times next year and inflation to ease further. Recent economic data has prompted optimism amongst investors about the likelihood of the Fed’s expectations for 2024 becoming reality.

But questions remain about when these rate cuts will come and whether they will be enough to avoid a recession in the U.S. as interest rates will remain elevated even after the cuts.

According to CME Group’s FedWatch tool, markets expect the first rate cut at the Fed’s March meeting, which will be the central bank’s second meeting of the year.

Jobless claims data out Thursday showed initial filings for unemployment last week move higher, rising 12,000 from the previous period.

Continuing unemployment claims moving higher and staying elevated typically signal “recession clouds moving in closer to shore,” but filings remain below recession warnings levels, noted Chris Rupkey, chief economist at FWDBONDS.

“If recession is coming next year, it is sure taking its own sweet time about it,” he wrote. “Economists at the Federal Reserve and on Wall Street have largely given up on their recession calls in 2024 especially as inflation has come down faster than expected in recent months. There’s some smoke but no fire in those recession forecasts if we look closely at the latest numbers from the jobless claims report.”