TREASURIES-Yields decline as Trump policies stay in focus

BY Reuters | TREASURY | 01/09/25 10:03 AM EST

Jan 9 (Reuters) - Treasury yields eased on Thursday following a sharp selloff that sent 10-year yields to a more than eight-month high on Wednesday as traders evaluated the likely economic impact of policies proposed by the incoming administration of President-elect Donald Trump.

Business deregulation and tax cuts are likely to boost U.S. growth while a crackdown on illegal immigration and tariffs are seen as potentially fanning inflation. The Federal Reserve, meanwhile, is expected to be more cautious in cutting interest rates as it watches the economic impact of the changes.

With considerable uncertainty over what policies exactly Trump will introduce, traders are pricing in much stronger growth as the default option, said Thomas Simons, U.S. economist at Jefferies in New York.

"We can't predict how it's going to go wrong," he said. "So you're left with this only path forward that is - well, I guess it means we're going to have more growth, it means we're going to have more inflation, it means that the Fed is probably not going to cut as much."

The U.S. government is also expected to increase debt auction sizes this year if the budget deficit continues to worsen, as is widely expected for the foreseeable future, and as it balances its debt maturity profile to rely less on shorter-dated bills.

U.S. yields declined even as 10-year British government debt yields reached their highest levels since 2008 on concerns about the direction of the British economy.

The U.S. bond market will close early at 1400 EST on Thursday in honor of former President Jimmy Carter.

This week's main U.S. economic focus will be Friday's jobs data for December, which is expected to show that employers added 160,000 jobs during the month.

Interest rate-sensitive two-year note yields were last down 3.5 basis points on the day at 4.256%.

Benchmark 10-year yields fell 4 basis points to 4.653%. They peaked at 4.73% on Wednesday, the highest since April 25.

The yield curve between two-year and 10-year notes flattened one basis point to 39.7 basis points, after reaching 42.9 basis points on Wednesday, the steepest since May 2022.

Thirty-year Treasury yields fell 4.4 basis points to 4.8889%, after reaching 4.968% on Wednesday, the highest since Nov. 2023.

(Reporting by Karen Brettell Editing by Bernadette Baum)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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