The 10-year Treasury Yield Nudges Higher From 9-Day Lows on Soft Inflation Data; Up Next Retail Sales.

Bond yields ticked higher on Thursday morning, driven by a mix of economic data that revealed robust retail sales in December and an uptick in weekly jobless claims, partially linked to the California wildfires.

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Key Movements in Yields

• The 2-year Treasury yield rose 3.7 basis points to 4.3%, up from 4.263% on Wednesday.
• The 10-year Treasury yield increased by 1.3 basis points to 4.666%, compared to 4.653% the previous day.
• The 30-year Treasury yield edged up less than 1 basis point, reaching 4.885% from 4.878% on Wednesday.

These moves follow significant declines in yields during Wednesday’s session, when the 2-year yield experienced its largest one-day drop since September 4. Similarly, 10- and 30-year yields recorded their steepest one-day decreases since November 25, according to Dow Jones Market Data.

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Market Influences

Economic reports released Thursday painted a nuanced picture of the U.S. economy. Retail sales for December rose 0.4% on a seasonally adjusted basis, suggesting that the economy entered 2025 with solid momentum. This figure slightly missed economists' expectations of a 0.5% increase, as forecasted by a Wall Street Journal survey.

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In a separate report, initial jobless claims climbed by 14,000 to a total of 217,000 for the week ending January 11. This increase exceeded the median economist forecast of 210,000 and was partly attributed to disruptions caused by wildfires in California.

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On Wednesday, Treasury yields had dropped sharply following the release of the December consumer price index (CPI) report, which revealed a milder-than-expected monthly core inflation reading of 0.2%.

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The unexpected softness in inflation fueled optimism in both the stock and bond markets, as investors interpreted the data as a sign that inflationary pressures might be easing.

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The cooler inflation data has also influenced expectations for Federal Reserve policy. Futures markets now show an increased probability of at least a 0.25% interest rate cut by the Fed by June. Additionally, traders have raised the odds of two total rate cuts before the end of the year.

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This shift in sentiment reflects growing confidence that the Fed may pivot toward a more accommodative stance if inflation remains contained and economic conditions allow.

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The upward movement in bond yields on Thursday reflects a recalibration in market sentiment following the prior day’s sharp declines. While the December CPI report provided some relief, the stronger-than-expected retail sales data indicates resilience in consumer spending, potentially supporting economic growth in early 2025.

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At the same time, the rise in jobless claims introduces caution, underscoring the uneven nature of the recovery, particularly in regions affected by natural disasters like California.

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As investors weigh these mixed signals, Treasury yields are likely to remain sensitive to incoming data and shifts in Federal Reserve policy expectations. The balance between persistent economic strength and easing inflation pressures will be a key factor in determining the trajectory of yields and broader market trends in the weeks ahead.

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