US Manufacturing Sector Contracts Again While Yields Close Little Changed

Yields close nearly flat in the first session of 2025. Treasury yields traded within a 6-8 bp range today but closed within 2 bps of opening levels. Better-than-expected jobless claims and US manufacturing figures had a negligible impact on yields, which rose gradually this morning before falling slightly into the close. The short end of the curve is now only ~2 bps above pre-December FOMC meeting levels, marking a ~12 bp decline from last month’s highs. Meanwhile, equities sold off slightly, with the S&P 500, DJIA, and NASDAQ down 0.16%-0.36%.

Today’s data shows another manufacturing contraction. S&P manufacturing PMI data released today showed the manufacturing sector contracted again in December, though conditions were slightly better than estimates indicated. The overall index landed at 49.4 vs. the 48.3 original estimate, just shy of November’s 49.7. The release noted that “manufacturing production was down for the fifth successive month, with the rate of contraction the fastest in a year-and-a-half…” December marked a sixth consecutive monthly pullback in overall U.S. manufacturing conditions per the release, running counter to regional data earlier this week that showed promising improvements across Texas factories. Tomorrow’s ISM manufacturing data is also expected to show a contraction in the manufacturing sector.

Mortgage rates are on the rise again. After falling to a 2024-low of 6.08%, the averageon a 30-year mortgage rose to 6.91% as of today,the highest level since July. High borrowing costs have weighed on demand, and this morning’s data also showed that MBA mortgage applications plummeted by 12.6% in the week that ended December 27. According to Odeta Kushi, deputy chief economist at First American Financial Corp, “Industry experts are coming to the consensus that 2025 is another year of higher for longer for the housing market. It’s not great news.”