US 10 year yield is lower now on the year as traders price in a softer Fed in 2024

<p>The US 10-year yield is trading at 3.844% currently. That is down 4.0 basis points on the day. The decline today is moving the yield below the closing level from the end of 2022 at 3.886%. The last five trading days have been trading above and below that level. Today is making a run lower.</p><p>The direction of yields for 2023 initially saw a low reached in early April as a regional banking crisis played out leading to flows into the relative safety of the US debt. The low yield bottomed at 3.253% before starting its ascent back to the upside as the crisis was averted and focus returned to inflation and the strong US economy. </p><p>On July 6, the yield moved back into positive territory peeking at 4.094% on July 7. A corrective move lower to the yield down to 3.729% on July 19 before starting the next major surge that ultimately culminated with the yield highs reaching 5.021% on October 23.</p><p>Since then, the yield has steadily moved lower. The low yield today reached 3.837% which is just short of the low yield reached last week at 3.831%.</p><p>Looking at the daily chart, the price has closed below the 61.8% retracement of the 2023 range at 3.928% over the last five trading sessions (downward bias). That level is now a close bias-defining level. Staying below keeps the bias more to the downside. </p><p>The next major target area comes near a swing area between 3.671% and 3.729% (see yellow area and red numbered circles). </p><p>What would hurt the downward bias in 2024:</p><ul><li>There is a lot of optimism priced into US yields. If growth/inflation is stronger than expectations, the US yields may shift higher across the yield curve. The Fed Funds target is still at 5.25% to 5.50%. The Fed sees rates moving to 4.6% at the end of 2024. The market's are pricing in more. If that story line changes because on higher inflation/stronger jobs/growth, the Fed may be more stingy with cuts (or delay altogether) and that could see the whole curve shift higher</li><li><p>Ironically, the Fed starting to ease earlier (or more aggressively) than expected could slow the decline in the 10-year and push the focus by traders more into the shorter end of the yield curve. The 2-year yield is down from a high of 5.259% to 4.281% today, but the 2-10-year spread is currently at -44 basis points (the high point for 2024 well on. A flow of funds that pushes that yield spread back into positive territory, could act as a floor for the 10-year sector. </p></li></ul>

This article was written by Greg Michalowski at www.forexlive.com.