US bond yields hit seven-month low

Expectations for a potential interest rate cut by the United States Federal Reserve in 2024 are exerting significant pressure on Treasury bonds.

21 December 2023

Market close
  • US bond yields drop to 3.847%

  • Oil falls to $73 per barrel

  • Global markets brace for US core PCE data tomorrow

Treasury bond yields plunge to record lows

The yields on U.S. Treasury bonds have witnessed a notable drop, reaching new lows. Following the recent Federal Reserve meeting, these yields have sustained a downward trajectory, culminating in their lowest point on Thursday. Despite efforts by Federal Reserve officials to temper market expectations of a potential interest rate cut in 2024, the market has seen a surge in dollar and Treasury bond profit-taking since that meeting. During this gathering, the Fed outlined its interest rate strategy for the upcoming year, hinting at a possible three-step reduction in rates. Consequently, yields on 10-year bonds have plummeted to a seven-month low of 3.847%, exerting significant pressure on U.S. dollar trading as the market braces for a potential rate cut in March. Investors are keenly awaiting the core PCE data due next Friday, which could further impact yields if it indicates slowing economic growth.

Oil markets face renewed selling pressure

Oil prices have declined during Thursday’s trading session, interrupting a series of gains driven by supply shortage concerns. This downturn comes as new data reveals an increase in U.S. oil stockpiles. February futures for WTI crude fell by 0.3% to $73 per barrel, while Brent crude dipped by 0.4% to $79.45. According to the EIA, U.S. oil inventories have risen by approximately 2.9 million barrels. Meanwhile, shipping activities across the Red Sea are being disrupted by a series of attacks and missile launches by Houthi rebels, prompting some shipping companies to suspend operations. The U.S. has announced a maritime alliance to counter these threats.

Japanese Yen experiences a strong rebound

The Japanese yen is witnessing a notable recovery against major currencies, marking its most significant daily gain in nearly a year. This rebound follows a clear signal from Japanese authorities regarding a potential shift in monetary policy. Bank of Japan Governor Kozo Oda stated on Thursday that the central bank is considering various interest rate strategies as it plans to move away from negative short-term borrowing costs. After initially facing downward pressure following the Bank of Japan's decision to maintain its expansive monetary policy, the yen has made a strong comeback. The USD/JPY pair has notably declined from 144.90 to around 142.70.