Daily Market Color December 30, 2024Risk-Off Heading Into 2025 Rates plummet in a risk-off session. Swap rates declined gradually throughout the day and ended the session 3-10 bps lower across the curve. Weak Chicago business activity (36.9 versus 43.0 expected) data contributed slightly, though most of the rate decline occurred before the data release. 2-year and 10-year Treasury yields are now at 4.24% and 4.53%, respectively. Meanwhile, equities fell alongside the Treasury rally, with both the NASDAQ and S&P 500 down more than 1%. Regional manufacturing data shows growth. The Dallas Fed’s manufacturing activity survey (released today) showed that manufacturing activity in Texas expanded in December. The overall activity index climbed to 3.4 versus expectations of a -3.0 result, the first positive reading since April 2022. The production index, a key measure of manufacturing output, rose to 3.9 from ~0.0 in November. While future expectations for manufacturing activity declined, the survey still showed that respondents expect an overall expansion six months from now. The positive results come amidst a persistent manufacturing slump nationwide and ahead of Friday’s ISM data, which is expected to show a slight decline in national manufacturing activity during December. Memorable rates trading sessions in 2024. This has been a year of significant rate volatility as the Fed has continued their battle against inflation while reducing policy rates by 100 bps in the back half of the year. Let’s review some of the most memorable moments: The biggest intraday increase in the 2-year Treasury yield (+23 bps) came on April 10th after higher-than-expected consumer inflation data while the largest decline (-27 bps) was on August 2nd following weak labor market data. The highest closing level for 2-year yields was 5.04%, reached on April 30th with the market pricing in only 25 bps of rate cuts for all of 2024. The lowest closing level for 2-year yields was 3.54%, reached on September 24th. 2-year yields are currently 70 bps higher than the YTD low at 4.24%. Despite trading over a 150 bp range this year, the 2-year yield is only 1 bp from its closing 2023 level (4.25%). A note for tomorrow and a farewell to President Carter. Rates markets will close early tomorrow at 2 PM EST for New Year’s Day, and all trades should be executed before 1 PM EST. The DP team also sends our condolences to the Carter family- may President Carter rest in peace!
