The 10-year Treasury yield posted its biggest decline in eight years despite a year-end rebound that's softened the retreat.
The yield on the benchmark Treasury note has risen about 14 basis points in December to around 1.92%, but it's still down 76 basis points on the year, its biggest annual drop since 2011. Bond yields move inversely to prices.
On Tuesday, the last trading day of the year, the yield on the 10-year Treasury note climbed about two basis points, while the yield on the 30-year Treasury note rose four basis points to about 2.38%. The bond market closed at 2 p.m. ET.
U.S. rates started 2019 in a downward spiral as investors fled risk assets and flocked to safety amid an escalated U.S.-China trade war and deteriorating economic data. Adding to rates' downward pressure was the anticipation that the Federal Reserve will lower borrowing costs to combat a slowing economy.
The central bank embarked on what it characterized as a "mid-cycle adjustment," cutting borrowing costs three straight times, which further pushed rates down.
Over the summer, the yield on 10-year Treasuries dipped below those on two-year securities for the first time since before the financial crisis in 2007, an unusual phenomenon called yield-curve inversion that preceded previous recessions.
U.S. government debt yields started to rise across the board in September after the U.S. and China agreed on a truce in their tit-for-tat tariff war and started to negotiate a deal.
Investors began taking on more risk on the back of the optimism over U.S.-China trade relations. At the same time, economic data in the U.S. and overseas showed signs of improvement, which sparked a rally in yields.
In December, the 10-year Treasury yield posted its biggest monthly climb since September after the world's two largest economies agreed earlier this month to a so-called "phase one" trade deal. President Donald Trump said Tuesday he will sign the deal with high-level Chinese representatives at the White House on Jan. 15.
For 2020, many expect rates continue to rebound amid an improving economic outlook.
"We're anticipating a bearish start to 2020 in Treasuries as economic optimism inspires a backup in rates and the hope that the Fed is able to avoid a recession lifts yields to begin the year," Ian Lyngen, BMO's head of U.S. rates, said in a note.