NEW YORK- Treasury yields rose on reduced optimism that the Federal Reserve would cut rates sooner than previously assumed in 2024, as the economy remains resilient despite stickier inflation than expected.
US business activity held steady in November, data from S&P Global showed, with its flash US Composite PMI Output Index that tracks the manufacturing and services sectors unchanged at 50.7, a sign of a still strong economy.
The benchmark 10-year Treasury note’s yield was up almost 12 basis points from a two-month low of 4.363 percent hit on Wednesday, and the two-year’s yield also rose, though it remained about four basis points below the key 5 percent level.
The market has been too eager to call the end of the bond bear market and the recent sell-off became overdone, said Phillip Colmar, global strategist at MRB Partners in New York.
“The durability of the US and global economy warns against betting that bond yields will continue to fall,” he said. “As growth conditions prove resilient and inflation stickier than perceived in the months ahead, yields are likely to face further upward pressure,” Colmar said.
The yield on the benchmark 10-year note rose 5.4 basis points to 4.470 percent , while the two-year yield, which reflects interest rate expectations, rose 4.3 basis points to 4.953 percent .
A session shortened by the Thanksgiving holiday on Thursday skewed the view of the day’s market activity, said John Luke Tyner, portfolio manager and fixed-income analyst at Aptus Capital Advisors in Fairhope, Alabama.
The Fed will keep rates higher for longer as bets that yields will tumble toward a 3 percent -3.5 percent neutral rate are misplaced, Tyner said. The Fed will work to keep rates above that level, he said.
“The rally over the last couple of weeks in Treasuries was overly aggressive and a little bit ahead of the game,” said Marvin Loh, senior global macro strategist at State Street in Boston. – Reuters
