In Asian trade on Thursday, benchmark U.S. Treasury yields plunged to a four-month low after the Federal Reserve declared an end to interest rate hikes and hinted at more substantial rate cuts than anticipated in 2024.
The 10-year Treasury yields dropped 1.4% to 3.976%, breaching the 4% mark for the first time since late July. Meanwhile, 2-year yields fell 2.3% to 4.378%, and 5-year yields hit a six-month low, sinking 2% to 3.922%.
Having reached a more than 20-year high of 5% in October, the 10-year rate, a key gauge of safe-haven demand and bond market sentiment, had steadily declined. This trend was fueled by economic readings indicating cooling inflation and a less hawkish outlook from the Fed.
Lower interest rate prospects tend to favor bond markets, encouraging investors to opt for bonds with higher coupon rates amidst lower rates on new issuances. The Fed's decision to keep rates steady and project at least three rate cuts in 2024 contributed to this sentiment, with Chair Jerome Powell emphasizing progress against inflation.
As markets speculate on when the Fed will initiate rate cuts, traders are increasingly pricing in back-to-back 25 basis point cuts in the March and May meetings, with over a 70% chance of a cut in March. Analysts anticipate the Fed may be more aggressive on rate cuts than currently expected, with projections ranging from 150 basis points cut in 2024.
Goldman Sachs analysts revised their rate cut expectations to the first quarter of 2024, suggesting potential 25 basis point cuts in March, May, and June.
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