2-year Treasury yield ends at six-month low after Fed pencils in 2024 rate cuts

What happened

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  fell 25.2 basis points to 4.477%, from 4.729% on Tuesday. It was the lowest closing level since June 1 and the biggest one-day decline in the 2-year rate since mid-March, according to 3 p.m. Eastern time figures from Dow Jones Market Data.

• The yield on the 10-year Treasury
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  dropped 17.3 basis points to 4.032%, from 4.205% late Tuesday.

• The yield on the 30-year Treasury
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  fell 12.1 basis points to 4.183% after factoring in reopening levels.

• Wednesday’s levels for the 10- and 30-year rates are the lowest since Aug. 9.

What drove markets

Fed policymakers kept interest rates unchanged at a 22-year high of between 5.25%-5.5% on Wednesday, and dropped their 2024 year-end median estimate for the fed funds rate target to 4.6%, versus 5.1% previously. The projection implies that three quarter-point cuts will be delivered by the end of next year.

Fed Chairman Jerome Powell, appearing at a press conference, said the central bank will proceed carefully given an uncertain economic outlook, and that officials don’t want to take the possibility of further rate hikes off the table. He also said that policymakers need to see further progress on getting inflation back to 2%.

The benchmark 10-year Treasury yield has fallen from a 16-year high of just above 5% in October, to almost 4% on signs of easing inflation. In data released earlier on Wednesday, wholesale prices were unchanged for November.

What analysts are saying

“My initial reaction is that the Fed is clearly acknowledging inflation is coming down, which is good, but also lowered its expectations for GDP at the same time, which is bad,” said Brian Mulberry, client portfolio manager at Chicago-based Zacks Investment Management, which managed $14.8 billion in assets as of September. “There’s no question that the Fed has moved closer to where the market’s expectations were for rate cuts in 2024, which eases financial conditions and affects everything.”