US 10Y TREASURY: only 50 bps in 2025?

The Fed spoiled the market game for one more time. Although interest rates were cut by another 25 bps as expected, still the market did not like what Powell said about projections for 2025. He noted that the Fed expects persistent inflation, hence, the current projections are drop in interest rates by only 50 bps. Inflation expectations were also corrected, so now the Fed expects the PCE indicator to end next year at 2,5%, versus 2,2% previously forecasted, while its targeted 2% is expected to reach in 2027.

The inevitable happened on the Treasury market - yields went strongly higher. The 10Y US benchmark yields were moved from 4,3% from the start of the week toward the highest weekly level at 4,58%. However, they eased at Friday's trading session, after better than expected US inflation data, ending the week at 4,52%.

Holiday season on Western markets is coming in the week ahead. During this period of time it should not expect any stronger moves or higher corrections. In this sense, the 10Y US Treasury would most probably end this year around levels of 4,5%.