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Treasury Yields Rally on Slumping Confidence
28 Jan
Summary
- Slumping consumer confidence revived the Treasury yield curve steepening trend.
- This sentiment drop reinforced expectations of two Fed rate cuts this year.
- Short-term Treasury yields decreased, extending the curve steepening pattern.
A significant drop in consumer confidence has resurrected the yield-curve steepening trend in Treasuries, a pattern that had recently stalled. The Conference Board's gauge of consumer sentiment unexpectedly fell in January to its lowest point in over a decade.
This downturn in sentiment has reinforced expectations for two Federal Reserve interest-rate cuts within 2026. Consequently, short-maturity Treasury yields declined, with the two-year note's yield falling more than three basis points from its daily high.
Throughout most of the preceding year, anticipation of Fed rate cuts drove down short-term Treasury yields. Longer-maturity yields, however, remained elevated due to inflation expectations and anticipated increased borrowing. This divergence created the widest yield differentials in years.
