U.S. Treasury yields saw modest moves Thursday to close out the final trading session of a year marked by a global viral epidemic and extraordinary fiscal and monetary policy actions.
Despite expectations that yields might eventually climb in 2020, they mounted their steepest annual yield slides in years, reflecting heady appetite for the perceived safety of government bonds.
The government debt market ended an hour early, at 2 p.m. Eastern Thursday, and will remain closed Friday for New Year’s Day.
How are Treasurys performing?
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The 10-year Treasury note yieldBX:TMUBMUSD10Y shed 1.3 basis points to 0.913%. For the week, the benchmark bond shed 2 basis points, but gained 6.8 basis points in December as COVID vaccines rolled out and the outlook for the economy improved. The 10-year gained 23.6 basis points for the quarter, marking its largest quarterly rise since 2018, even as it notched the largest one-year yield decline, 99.6 basis points, nearly a full percentage point, since 2011.
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The 2-year note rateBX:TMUBMUSD02Y was down 0.6 basis point to 0.119%. For the week, the note slipped 0.2 basis point, while retreating 2.8 basis points on the month and declining 0.4 basis point in the last three months of the year. For all of 2020, the 2-year declined 1.44 percentage points, representing the sharpest annual yield slump for the note since 2008.
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The 30-year bond yieldBX:TMUBMUSD30Y fell 1.8 basis points to 1.642%. For the week, the so-called long bond gave up 2.7 basis points and booked a 6.8 basis point advance in December. For the year, the bond declined 73.6 basis points, for its sharpest yearly slide since 2014, mitigated partly by a 18.9 basis point climb in 2020’s final three months.
What’s driving the Treasury market?
Bond-market activity was limited in holiday-thinned trading Thursday, with investors eyeing U.S. labor-market data.
U.S. data showed first-time jobless benefit claims unexpectedly declined by 19,000 to 787,000 last week. Economists surveyed by MarketWatch had forecast initial claims to rise to 835,000. State continuing jobless claims dropped 103,000 to 5.22 million.
While initial jobless claims fell for a second week, they remain high compared with any week before the coronavirus pandemic. The prior record of 665,000 set in 2009, was easily shattered early in the pandemic when new claims peaked at a whopping 6.87 million in the last week of March this year.
Treasurys are ending a turbulent year that has seen the 10-year Treasury yield plummet to all-time lows, and then steadily rebound. Analysts now forecast a gradual rise in the benchmark bond yield as the economy normalizes, but an accommodative Federal Reserve is likely to cap rate moves.
Markets were also looking ahead to the Georgia Senate runoff elections. Though a surprise victory by Democrats in both seats could allow a Biden administration to loosen the fiscal taps and widen the budget deficit, which could heap bearish pressure on long-term Treasurys, some market participants said the outcome could also spark short-term volatility in risk assets like stocks and bolster haven investments.
See: Wall Street forecasters see the ‘gradual reflation story’ lifting bond yields in 2021
What did market participants say?
“The possibility of a Democratic Senate was initially considered bond-bearish, but some are now saying it could hurt [risk assets], and drive Treasury prices higher,” said Steve Feiss, managing director of fixed income for Etico Partners, in an interview.
