U.S. 10-year Treasury yields experienced a notable decline to their lowest levels in two months on Friday. Investors adjusted their expectations, considering the possibility of interest rates being potentially one full percentage point lower a year from now, given recent indications of economic softness.
The yield on the 10-year note dropped by up to 6.6 basis points, reaching a session low of 4.379%. It concluded the day down 5 basis points at 4.393%.
Recent economic data revealed a quicker-than-anticipated cooling of consumer and wholesale inflation, coupled with signs of strain in the labor market. The unexpected surge in initial weekly jobless claims contributed to the perception that economic conditions might prompt a significant adjustment in interest rates.
Two-year yields, particularly sensitive to shifts in Federal Reserve monetary policy expectations, were down by 3 basis points, settling at 4.81%. This marks their lowest level since early September, with a 25 basis points decline over the week—reflecting the most substantial weekly drop since the regional banking crisis in March.
Money markets are signaling trader expectations of a 100 basis points reduction in interest rates by the Federal Reserve by the end of the next year. The market’s response underscores the ongoing uncertainty and the cautious stance adopted by investors amid evolving economic conditions.
