TREASURIES-US yields push higher after latest jobless claims

By Matt Tracy

Dec 31 (Reuters) - Treasury yields moved higher on Wednesday after new U.S. jobless claims, the last major economic data before the New Year, came in lower than forecasts.

The yield on 10-year Treasury notes ticked up 1.9 basis points (bps) from Tuesday's close and last stood at 4.147%. This is 42.6 bps lower than a year ago when ?yields closed 2024 at 4.573%, and it is 65.6 bps below the 2025 high point of 4.803% reached on January 13.

The two-year U.S. ?Treasury yield, which typically moves in step with interest rate expectations, was up 1.7 bps and last ?stood at 3.471%. This is 76.9 bps lower than 4.24% a year ?ago and 93.1 bps ?below a year-high 4.402% reached on January 13.

This marks the first year since 2020 that the 10-year yield saw a yearly drop, while ?the two-year yield is on track for its biggest ?yearly drop since 2020.

The U.S. dollar five-year forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the ?Fed's quantitative easing, was last at 2.444%.

Yields have fallen ?over the ?course of 2025 as the U.S. Federal Reserve has gradually made cuts to its key interest rate, in a shift from its largely hawkish stance on rates between 2020 and 2024.

Data ?on Wednesday pushed yields higher after initial jobless claims for the week ended December 27 came in lower than economists' estimates. There were 199,000 claims last week, versus 220,000 forecast in a Reuters poll of economists.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 67.4 bps. This ?is 6.6 ?bps below a year-high of 74 bps.

Market odds of a cut in a key interest rate at the Federal Reserve's January meeting were last at 14.9%.

Market participants are watching closely ?for any key data points that could point to a rate cut in January. This will likely come in the first month of 2026 with the next major inflation and jobs reports, market participants said.

Eligible financial firms on Wednesday borrowed a record amount from the Federal Reserve Bank of New York's Standing Repo Facility, in a final borrowing push before the New Year.

They borrowed $74.6 billion from the Fed, which they collateralized with $31.5 billion in Treasury bonds ?and $43.1 billion in mortgage-backed securities.

"Investors must be patient, but inflation will eventually get closer to the Fed's target rate," said Jeffrey Roach, chief economist for LPL Financial, in a written note.

"I expect the Fed to cut rates a couple times next year ?as signs of a weaker job market become more evident." (Reporting by Matt Tracy in Washington; Editing by Andrea Ricci)