US 10-year yield poised to end 2023 at almost exactly where it started

By Michael Mackenzie

After a year of massive swings and numerous head fakes, the US 10-year yield is poised to end 2023 almost exactly where it began.

It’s an almost farcical conclusion to 12 months of trading that saw rates on the benchmark — a global anchor for markets and US mortgage rates — tumble to as low as 3.25 per cent in the wake of March’s banking crisis, only to surpass 5 per cent for the first time in 16 years just a few months later. 

US 10-year yield market graph (Photo: Bloomberg)

The moves reflect a broader volatility after markets entered the year pricing for a recession, only for a resilient economy underlined by a tight jobs sector to keep the Fed raising interest rates through to their July meeting. That wrongfooted a bunch of Wall Street strategists, yet many are again convinced that 2024 will bring about that long-anticipated slowdown and Fed cuts — even if there are some swings along the way. 

“For the long end of the US Treasury curve, you earned the coupon but — stress adjusted — it felt like you lost money on bonds in 2023,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “2024 will be another volatile year.”

The 10-year yield traded at around 3.86 per cent as of 11:26 a.m. in New York on the final trading day of the year, a touch under its 2022 close of 3.875 per cent. 

That year-end yield is the culmination of a stunning rebound for Treasuries that, as recently as October, saw the 10-year rate as high as 5.019 per cent and the bond market on course for a historic third consecutive year of losses. 

But a subsequent market rally on weakening data has spared money managers, with the late-year boon for bonds only intensifying in mid-December when the Federal Reserve surprised investors by signaling more potential for interest-rate cuts in 2024.

The market is now pricing in more than 150 basis points of cuts for 2024, with traders increasingly betting that the first easing will arrive by March. 

And despite the minuscule move in the 10-year yield year-on-year, the great bond comeback leaves the Bloomberg Treasury index up about 4 per cent for the year.