U.S. Treasury yields fall to a new low for 2025

On February 6, 2025, U.S. Treasury yields sharply declined on Wednesday, with long-term bond yields dropping by at least 10 basis points, reaching new lows for 2025. The primary reason for the drop was that the U.S. ISM Services Index performed below economists' expectations, particularly with an unexpected decline in a measure of prices paid by businesses.

According to the U.S. Treasury's quarterly refunding announcement, Treasury issuance is expected to remain stable over the next few quarters. Nonetheless, the bond market reacted strongly, with yields generally declining. The benchmark 10-year Treasury yield fell 10 basis points at one point, down to 4.41%, the lowest since December 18. In contrast, the 10-year yield had reached a peak of 4.81% on January 14.

Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities, predicted that the 10-year Treasury yield would fluctuate between 4.25% and 4.75% in the short term. Despite mixed economic signals, the market remains optimistic about the Federal Reserve potentially resuming rate cuts in the future.

Meanwhile, the 2-year Treasury yield fell only 5 basis points, to 4.16%, narrowing the spread between 2-year and 10-year Treasuries to about 25 basis points, the smallest in the past month. As a result, Morgan Stanley economists have abandoned their expectation of a rate cut in March.

Analysts believe that due to President Trump's ongoing threats to impose new tariffs on major trading partners, the outlook for the U.S. economy remains uncertain, limiting the extent of yield declines in the short term. Nevertheless, economic data and market reactions suggest the Federal Reserve might resume rate cuts later this year to address ongoing economic slowdown pressures.

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