Treasury Securities Decline on Final Trading Day of the Year Amid Drop in Initial Jobless Claims
On the last day of the year, U.S. Treasury prices declined in a shortened trading session after a surprise drop in weekly initial jobless claims indicated a strong labor market, which could weaken market expectations for Federal Reserve rate cuts. Shortly after 1 p.m. New York time, futures trading surged and prices fell to their intraday lows as the Bloomberg U.S. Treasury Index conducted its month-end rebalancing at 1 p.m.
Due to the early settlement of CME interest rate products at 1 p.m., the Bloomberg U.S. Treasury Index month-end rebalancing, typically conducted at 4 p.m., was also moved forward.
The index added bonds issued this month that met inclusion criteria while removing those with less than 12 months remaining maturity, extending the duration by approximately 0.06 years. However, adverse price movements suggested that demand related to the index adjustment was lower than expected.
U.S. Treasury futures trading volumes reached their highest level in weeks due to the index adjustment, with around 255,000 contracts traded in 10-year Treasury futures within a five-minute window.
Shortly after 1 p.m., yields across all maturities rose by at least 3 basis points but remained within the range seen since December 23, with the 10-year yield approaching 4.16%.
The Securities Industry and Financial Markets Association (SIFMA) recommended a 2 p.m. close for dollar-denominated bonds; U.S. stock markets maintained normal trading hours.
Amid signs of resilience in the U.S. economy, U.S. Treasuries are on track for a modest monthly decline but are expected to post their best annual performance since 2020, following three rate cuts by the Federal Reserve in response to a weakening labor market.
As of 2:44 p.m. Eastern Time, the yield on the 2-year U.S. Treasury note rose by 2.47 basis points to 3.473%.
The yield on the 5-year U.S. Treasury note increased by 4.85 basis points to 3.7252%.
The yield on the 10-year U.S. Treasury note climbed by 4.51 basis points to 4.167%.
The yield on the 30-year U.S. Treasury bond increased by 3.66 basis points to 4.8436%.
The spread between the 2-year and 10-year U.S. Treasury yields widened by 1.84 basis points to 68.986 basis points.
The spread between the 5-year and 30-year U.S. Treasury yields narrowed by 1.19 basis points to 111.662 basis points.
