Yields Climb to End a Relatively Quiet Week

Yield curve steepens in a quiet session. The long end of the yield curve climbed 4-5 bps today while the short end was nearly flat, extending this month’s steepening. The 2s10s Treasury yield spread is now near 30 bps, its widest since June 2022. On the week, the 10-year yield climbed over 10 bps to 4.62%, while the 2-year yield inched 1 bp higher to 4.33%. Meanwhile, equities slumped today with the NASDAQ and S&P 500 falling 1.49% and 1.11%, respectively.

Bank of Japan (BoJ) releases December meeting summary. The BoJ held rates steady at its December meeting. However, in the meeting summary released today, the central bank communicated that rate hikes are still in play if upside risks to prices materialize, with a specific focus on how U.S. economic policy develops in the coming year as a key consideration. Following the release, Japanese yields rose; most notably, the 10-year yield climbed to 1.125%, its highest since early 2011. As JGB yields continue higher, fears of Japanese investors (currently the largest foreign holders of U.S. debt) re-allocating capital to domestic assets may resurface, whereby lower demand for USTs would drive higher U.S. yields. 

Another holiday-shortened week ahead. Next week’s slate will feature an early market close on Tuesday (2 PM EST) and a full market close on Wednesday. U.S. manufacturing data will headline economic data, and forecasts show another expected contraction in December across two readings. Friday’s ISM manufacturing print is expected to show the index declining slightly from 48.4 in November to 48.3, which would mark the ninth consecutive month of a manufacturing sector contraction.