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US Treasurys slightly higher on last day of 2015

U.S. Treasury notes and bonds traded higher on Thursday, the last day of 2015, as major U.S. stock averages dipped.

Benchmark 10-year Treasury notes yielded 2.2685 percent to end the day, down from a close of 2.305 percent on Wednesday. Thirty-year bonds yielded 3.0164 percent, down from a close of 3.043 percent. (Bond prices move inversely to yields: CNBC Explains)

The market closed early at 2 p.m. ET and trade was thin ahead of the New Year's Day holiday on Friday.

Symbol
Yield
 
Change
US 3-MO
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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One year in bond markets

Treasury yields have risen slightly this year, despite volatility in both directions. The 10-year note yielded 2.114 percent at the start of the year, while 30-year bonds yielded 2.690 percent.

The major events for Wall Street this year were the long-awaited hike to interest rates by the U.S. Federal Reserve in December and the global market turmoil that followed China's equity market collapse during the summer.

"A major uncertainty hanging over the FOMC (Federal Open Market Committee) and the markets is that no-one can be confident what effects even a small rise in short-term interest rates will have. All territory is now uncharted territory. The Fed and other major central banks have maintained emergency policy-settings for so long that the global economy cannot be presumed to react in standard fashion to a rise in interest rates, however small that might be," Stephen Lewis, chief economist at ADM Investor Services International, said in a research note on Thursday.

Yields on French OATs also edged higher this year, with German bunds — a supposed "safe haven" investment comparable to Treasurys — making a similar move. That was despite the European Central Bank launching a massive bond-buying program in March.


Symbol
Price
 
Change
%Change
UK 10-YR
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Bund 10-Yr
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ITA 10-YR
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FRA 10-YR
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SPA 10-YR
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The biggest yield increases were in emerging markets, notably in South Africa and Turkey and most of all, Brazil. Yields on Greek sovereign bonds, meanwhile, fell sharply after the country once again abated a debt crisis and secured another bailout from international creditors in the middle of the year.

"In markets outside my comfort zone, I'm inclined to back the FTSE among equities, and Russian bonds still have room to fall," Kit Juckes, a strategist at Societe Generale, said in a research note on Thursday.

"In developed bond markets, duration is attractive and 30-year yields above 3 percent in Spain (if it stays one country) appeal. 2.7 percent for 30-year (U.K.) gilts is going to look attractive if rates only go up once or twice too, and there will be an orderly queue to buy 30-year Treasurys if yields get much higher too."

Thursday’s trade – what to expect

Movements in oil prices will help determine the direction of trade on Thursday. Brent and U.S. West Texas Intermediate (WTI) crude futures both ticked higher Thursday above $37 per barrel, after falling more than 3 percent in the previous session. This helped propel the Dow index to triple-digit losses on Wednesday.

On the data front, U.S. weekly jobless claims came in at 287,000, above the expected 270,000.

The Chicago Purchasing Managers' Index (PMI) showed a read of 42.9 for December, below November's 48.7. Consensus forecasts indicated that the Chicago PMI would read 49.5 for December.

The 2016 annual meeting of the American Economic Association (AEA) will open on Sunday in San Francisco. There will be speeches from several senior members of the Federal Reserve during the day, including San Francisco Fed President John Williams, Vice Chairman Stanley Fischer and Cleveland Fed President Loretta Mester.


Puerto Rico to default

On Wednesday, Puerto Rico confirmed it would default on two out of 13 debt payments worth a total of nearly $1 billion due on January 4. This will be the U.S. territory's second default since August. The Obama administration said that this underlined the importance of U.S. Congress providing an aid package to Puerto Rico.

The U.S. dollar is set to post gains of around 8.8 percent on the year against a basket of major currencies. It was one of 2015's top-performing currencies, along with the Swiss franc and the Japanese yen, and its strength helped propel the stark losses seen in commodities (which are usually denominated in the U.S. dollar).

Meanwhile, the last day of 2015 will determine whether the benchmark S&P 500 squeezes out any gains on the year. As of the market close on Wednesday, the index was up 0.2 percent for 2015, while the Dow Jones Industrial Average was down 1.2 percent for the year and the tech-focused Nasdaq Composite was nearly 7 percent higher.