Treasury Yields Dip as Markets Eye December Rate Decision

U.S. Treasury yields edged lower early Friday as markets began a shortened trading day after the Thanksgiving holiday. The 10-year Treasury yield fell by 2 basis points to 4.22%, while the 2-year yield held steady at 4.208%. (One basis point equals 0.01%.)

Bond yields and prices typically move in opposite directions. Friday's economic calendar is light after a busy week of updates.

Earlier in the week, the Federal Reserve's preferred inflation metric showed a slight uptick. The rate rose to 2.3% last month, matching expectations from Dow Jones analysts. Unemployment claims also fell more than expected, signaling a still-tight labor market.

Minutes from the Fed's November meeting hinted at a gradual easing of interest rates. This would depend on inflation and labor data staying within expected ranges.

However, external factors could complicate the Fed’s plans. On Monday, President-elect Donald Trump threatened new tariffs targeting China, Mexico, and Canada. Economists warn that these tariffs could drive up domestic inflation. This might make the Fed hesitant to lower rates too quickly.

Traders are now focused on the December meeting. According to the CME Group’s FedWatch Tool, markets are pricing in a 66.3% chance of a 25 basis-point rate cut. Meanwhile, the odds of holding rates steady stand at 33.7%. The final decision will depend on how inflation and employment data evolve in the coming weeks.