U.S. Treasury yields edge lower in last trading session of the year

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What could rattle markets in 2021, even as vaccines are rolling out


U.S. Treasury yields were slightly lower on Thursday, the last trading session of the holiday-shortened week as investors closed the books on 2020.

The bond-market will end business early at 2 p.m. ET Thursday, and remain closed on Friday for the New Year holiday.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
0.915%

was down a basis point to 0.916%, while the 2-year note rate
TMUBMUSD02Y,
0.117%

was down 0.4 basis point to 0.123%. The 30-year bond yield
TMUBMUSD30Y,
1.651%

fell 1.4 basis points to 1.648%.

Bond-market activity was limited in holiday-thinned trading, 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 to 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 yields.

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 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.



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