The US Treasury market ended 2024 with a small gain, bucking the trend of annual losses for an asset class that typically sees interest payments offset price declines caused by rising yields. The market’s advance was smaller than in 2023, which followed two consecutive annual losses.
Resurgence of Inflation
Inflation resumed its downward trend after the first quarter, and the Federal Reserve cut interest rates three times, contributing to the market’s gain. However, the Fed’s policy shifts did not have a significant impact on long-term yields, causing short-maturity yields to remain relatively high.
Rate Cuts and Yields
The three rate cuts – in September, November, and December – totaled one percentage point, bringing the central bank’s target range for the US overnight interest rate to 4.25%-4.5%. The rate cuts were a result of more favorable inflation trends, which put Fed rate cuts back on the table.
Market Reversal
The market reversed course in mid-September, with yields reaching their lowest levels of the year. Treasuries had a 4.7% YTD gain at this point but eroded as the US presidential election and stronger-than-anticipated economic data curbed the outlook for additional Fed rate cuts in 2025.
Impact on Long-Term Yields
The Fed’s policy shifts held down short-maturity yields, causing the 10-year to exceed the 2-year, and the 30-year to exceed the 5-year by more than half a percentage point. This was the first time since 2022 that these yield spreads occurred.
Forecast for 2025
Many US interest-rate strategists expect short-term rates to decline by at least 50 basis points in 2025, with 10-year yields declining by about 30 basis points.
Bloomberg US Treasury Index Performance
The Bloomberg US Treasury Index returned 0.6% for the year, with the best months being July (2.2%) and May (1.5%). The worst months were October (-2.3%) and April (-2.3%).
2024 Changes in Benchmark Yields
- 2-Year Yield: -0.8 basis points
- 5-Year Yield: +53 basis points
- 10-Year Yield: +69 basis points
- 30-Year Yield: +75 basis points
Yields ratcheted higher during the early part of the year, driven by rising oil prices and overall inflation.
Fed Rate Cuts
The Fed cut interest rates three times in 2024:
- September 18: a half-point rate cut
- November 7: a quarter-point rate cut
- December 18: another quarter-point rate cut
Inflation Expectations and Actual Inflation
Inflation expectations implied by yields on Treasury inflation-protected securities followed a similar pattern, peaking at around 2.6% in April and ending the year around 2.4%. However, actual inflation slowed, with the Consumer Price Index up 2.7% y/y in November, and core inflation rising 3.3%.
Shifts in Fed Rate Change Expectations
Expectations for Fed rate changes shifted dramatically throughout the year:
- First quarter: forecasts for at least 100 basis points of easing by year-end were common
- April: many banks forecasting just one quarter-point cut
- August: predictions of at least 75 basis points of easing became common again
Market Volatility
Large daily swings in yield became somewhat less frequent than in the previous two years, and gauges of market volatility broadly declined. Some of the biggest daily moves occurred on:
- February 2: strong January jobs report
- February 13: January CPI
- April 10: March CPI
- June 7: strong May jobs report
- October 25: Treasury secretary designated, oil price drop
- November 6: US presidential election outcome
- December 18: FOMC revised forecasts anticipating less easing
Treasury Department Auction Sizes
The Treasury Department increased quarterly auction sizes (for all tenors except 20-year) for the last time in February and said no further increases were anticipated for at least the next several quarters.
See Also
- 2023 summary
- 2022 summary
- 2021 summary
- 2020 summary
- 2019 summary
- 2018 summary
- 2017 summary
- 2016 summary
- 2015 summary
- 2014 summary
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