Treasury Yields Dip as Traders Assess Fed Remarks and Await GDP Data

Yields on U.S. government bonds edged lower Thursday morning as investors assessed economic data indicating a slowdown in U.S. growth and stagnation in three key European economies at the end of 2024.

‍

Current Market Moves

• The yield on the 2-year Treasury note slipped 1.2 basis points, settling at 4.214%, down from 4.226% the previous day.
• The 10-year Treasury yield fell 3.2 basis points to 4.522%, compared to 4.554% on Wednesday.
• The 30-year Treasury yield declined 2.4 basis points, landing at 4.766%, after closing at 4.790% a day earlier.

‍

Since bond yields move inversely to prices, the decline suggests increased investor demand for safer assets amid concerns about economic growth.

‍

Key Market Drivers

The downward movement in Treasury yields was largely influenced by fresh economic data from Europe. Reports showed that Germany, France, and Italy—three of the region’s largest economies—experienced near-zero growth in the final quarter of last year. Additionally, the European Central Bank (ECB) lowered its deposit rate by 0.25 percentage points, bringing it to 2.75%, the lowest level in nearly two years.

‍

The ECB’s decision was accompanied by a decline in the 10-year German bund yield, which dropped 6.7 basis points to 2.516%. Given that German bunds serve as a benchmark for European debt markets, this move signaled broader investor caution across the continent.

‍

Meanwhile, Asian markets remained subdued as many countries were observing the Lunar New Year holiday, leading to lower trading volumes.

‍

In the U.S., fresh economic reports painted a mixed picture. The latest data revealed that gross domestic product (GDP) growth slowed to an annualized rate of 2.3% in the fourth quarter, down from 3.1% in the third quarter. Despite this deceleration, underlying economic indicators suggested resilience.

‍

One notable highlight was the weekly jobless claims report, which showed a drop of 16,000 claims, bringing the total to 207,000 for the week ending January 25. This marked the lowest level in three weeks, reinforcing the idea that the labor market remains robust despite concerns about slowing growth.

‍

Investors also weighed the Federal Reserve’s policy outlook after comments from Fed Chair Jerome Powell on Wednesday. Powell emphasized that the central bank does not need to rush into further rate adjustments, reinforcing expectations of a measured approach to monetary policy.

‍

As a result, fed-funds futures traders priced in a 32.9% probability that the Fed will implement two quarter-point rate cuts in 2025. While market participants continue to anticipate lower rates, Powell’s remarks suggested that the timing and pace of those cuts remain uncertain.

‍

With Treasury yields declining, investors appear to be factoring in slower global economic growth and a more patient Federal Reserve stance. The combination of weakening European growth, cautious central bank policies, and resilient U.S. labor data continues to shape expectations for the bond market in the coming months.

‍